Saudi Arabia: Oil cut extension fails to prop up crude prices
June 1, 2017
The agreement that key oil producers reached on 25 May to extend the oil cuts into 2018 has failed to boost oil prices. The Organization of the Petroleum Exporting Countries’ (OPEC) oil basket traded at USD 48.7 per barrel on 31 May, a decrease of 0.9% from the same day in April. Although oil prices have recovered 7.8% of their value from the same day in 2016, they are now down 8.6% since the start of the year.
14 OPEC member countries and 10 non-OPEC parties agreed on 25 May to extend their production adjustments for a further period of nine months, beginning 1 July, “in order to achieve a lasting stability in the oil market”. Participants stated that they expect inventories to fall significantly by the end of this year, contributing to stabilize the oil market. While the agreement was in line with expectations, prices failed to rally as some market participants had expected more aggressive measures such as deeper cuts of longer duration or the inclusion of more countries in the deal. Going forward, oil prices will be under pressure from robust oil supply not only in the United States, but in other countries such as Libya, where oil production is slowly recovering. Upward pressure on prices will stem from OPEC’s compliance with the deal—102% in April—and strong demand from emerging markets.
According to the latest OPEC Monthly Oil Market Report, combined oil output in OPEC countries decreased from 31.75 mbpd in March to 31.73 mbpd in April, mainly reflecting a reduction in production in Iran, Iraq, Libya, the United Arab Emirates and Venezuela. Conversely, Angola, Nigeria and Saudi Arabia recorded a significant increase in crude production in the same month. Of this, Saudi Arabia produced 9.95 mbpd in April, which was slightly above from March’s 9.91 mbpd.