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Saudi Arabia: Global oil glut pushes OPEC oil prices to an over-six-year low

November 30, 2015

Oil prices had remained at very low levels in the last few months, although they were always above the psychological barrier of USD 40 per barrel. This all changed in mid-November, when oil prices sank below USD 40 per barrel. On 23 November, the average price of the Organization of Petroleum Exporting Countries (OPEC) oil basket fell to USD 38.4 per barrel, which marked the lowest price since the height of the financial crisis in early 2009. The reading was a sizeable 11.7% decline over the same day of the previous month, while oil prices were down by 49.2% on an annual basis.

Prices for oil remain at multi-year lows as the main pillars of the oil price plunge that began last year are far from being resolved. OPEC countries continue to pump oil at record levels to retain market share, in part by forcing higher-cost producers elsewhere to cut production. Moreover, the world’s other key producers are also keeping up oil output to generate short-term revenue for their battered coffers. In the United States, crude stocks are high and rising, while the national oil industry remains relatively resilient despite low prices. This situation, coupled with rising uncertainties over the health of the global economy, is keeping the global crude markets oversupplied. Going forward, the oil glut is likely to persist amid expectations that the re-integration of Iran into the global economy will bolster global oil supply. Furthermore, analysts do not foresee the oil cartel scaling back output at its next meeting scheduled for 4 December.

OPEC pumped 31.38 million barrels per day (mbpd) in October. The print was down from the 31.6 mbpd pumped in September, but well above the official 30.0 mbpd that the oil cartel has agreed to supply. According to the latest OPEC Monthly Oil Market Report, the decline in output mainly reflected falling production in Iraq, Kuwait and Saudi Arabia. The Kingdom’s oil production reached 10.13 mbpd in October, which was less than the 10.20 mbpd tallied in September.

FocusEconomics Consensus Forecast panelists expect oil production in Saudi Arabia to average of 10.40 million barrels per day this year. In 2016, our panel of analysts sees crude output remaining broadly stable at 10.38 million barrels per day.

Author: Ricard Torné, Lead Economist

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SaudiArabia Commodity November 2015

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

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