Saudi Arabia Commodities March 2016

Saudi Arabia

OPEC prices recover slightly ahead of a potential deal among key producers

The downward trend in crude prices observed since mid-2015 that brought oil prices to hit the lowest value since 2002 in January was temporarily halted in late February following the announcement made by key producers to freeze oil production. On 2 March, the price of the Organization of Petroleum Exporting Countries (OPEC) oil basket was USD 31.7, which represented an 11.4% gain over the same day of the previous month. That said, oil prices were down a whopping 44.2% on an annual basis.

Ministers from Qatar, Russia, Saudi Arabia and Venezuela announced on 16 February that their respective countries would freeze oil production at January levels in an attempt to boost crude prices, which hit a multi-year low at the start of the year. This move represented the first cooperation between OPEC members and Russia, the world’s second-largest producer, since 2001. In the following weeks other oil producers joined the agreement and, according to Nigeria’s petroleum minister, key members of OPEC and Russia will be meeting on 20 March to agree on the details of the pact.

Although the announcement halted the downward trend in oil prices, it failed to significantly prop up prices. Market analysts are skeptical about the scope and depth of the agreement due to a series of factors: The fact that Iran—which intends to bolster supply following the end of the sanctions—described the tentative agreement as “ridiculous” and Iraq’s refusal to join the deal have stoked fears that a conclusive pact without all key producers would be unviable. Moreover, analysts were expecting a cut in production rather than a mere freeze as most of the countries involved in the agreement have been pumping oil at a record pace in recent months. All of these factors, coupled with a protracted global economic recovery, promise to keep the oil glut in play in the short- and mid-term. Nevertheless, some analysts believe that, while a potential agreement between Russia and OPEC members will likely fail to reduce existing oversupply, it could represent an important step toward a greater coordination between key crude producers.

OPEC pumped 32.34 million barrels per day (mbpd) in January, which was up from the 32.20 mbpd extracted in December. According to the latest OPEC Monthly Oil Market Report, the increase in output mainly reflected stronger production in Iran, Iraq, Nigeria and Saudi Arabia as well as in Kuwait and Libya, albeit to a lesser extent. On the other hand, Algeria, Angola and Venezuela all recorded significant production declines in the same month. Saudi Arabia produced 10.09 mbpd in January, which was more than the 10.05 mbpd tallied in December.

FocusEconomics Consensus Forecast panelists expect oil production in Saudi Arabia to average of 10.31 mbpd this year. In 2017, our panel of analysts sees crude output remaining broadly stable at 10.38 mbpd.

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SaudiArabia Commodity March 2016 1

Note: Price of the OPEC oil basket in USD per barrel.
Source: Organization of the Petroleum Exporting Countries (OPEC).

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