Saudi Arabia: Financial instability hits oil prices in February
Heightened volatility in financial markets in early February interrupted the recent surge in oil prices, driving the price for the OPEC oil basket to its lowest level in over two months on 13 February. Afterwards, oil prices recovered; on 28 February, the OPEC oil basket traded at USD 64.0 per barrel, which was still a 5.8% decrease from the same day in January. While the price was down 0.8% from the start of the year, it was 19.8% higher than on the same day in 2017.
Signs that inflation in the U.S. is building at a faster pace than previously thought, which could imply a quicker and stronger rate hike cycle by the Federal Reserve, prompted the prices of global stocks to decline sharply in the first days of February. Oil markets were rapidly hit by the equity rout, along with a strong U.S. dollar. Moreover, mounting crude oil inventories in the U.S. renewed fears that, despite the OPEC-led output reduction and strong global growth, oil markets were overly supplied due to rampant production by the U.S. shale oil industry. Later in the month, oil prices resumed the upward trend amid reports showing a decline in inventories in the U.S. and an even stronger compliance level of 133% (December: 129%) by OPEC and non-OPEC countries participating in the oil-cap deal.
Meanwhile, output was largely stable in January among OPEC members. According to the cartel’s latest Monthly Oil Report, combined oil output in OPEC countries decreased from 32.31 million barrels per day (mbpd) in December to 32.02 mbpd in January, mainly on the back of lower output in Angola, Qatar and Venezuela. Conversely, output increased sharply in Iraq and Libya. Crude output in Saudi Arabia also gained ground in January, rising from 9.95 mbpd in December to 9.98 mbpd in January.