Saudi Arabia: Oil market volatility persists ahead of planned production cut
November 23, 2016
Uncertainty about the implementation of a deal to reduce crude supply by around 700,000 million barrels per day (mbpd) at the upcoming Organization of the Petroleum Exporting Countries’ (OPEC) 30 November meeting is driving the evolution of crude prices. While the OPEC’s oil basket hit an over one-year high on 19 October, it fell to a three-month low on 14 November. Afterwards, the OPEC’s oil basket traded slightly higher and reached USD 45.35 per barrel on 23 November, a decrease of 5.7% from the same day in October. Oil prices, however, have recovered an astonishing 45.0% since the start of the year and they are up 18.3% on an annual basis.
The erratic trend in oil prices since a tentative oil cut deal was reached in September mainly reflects uncertainty regarding the prospects of reaching a final accord at the 30 November OPEC meeting and ensuring compliance with the agreement going forward. Fierce negotiations about establishing individual country quotas continue as some countries such as Iran and Iraq appear to be reluctant to reduce their production. Russia’s involvement is also key to shaping the final deal. Russia has indicated its willingness to freeze production at current levels but OPEC members are seeking to include the country in the oil reduction goal.
OPEC countries continue to pump oil at a record pace ahead of the planned 30 November oil deal. The combined OPEC oil production reached 33.64 mbpd in October, up from the 33.41 mbpd extracted in September. According to the latest OPEC Monthly Oil Market Report, October’s increase in output mainly reflected a boost in production in Iraq, Libya and Nigeria and, to a lesser extent, in Iran. Conversely, Angola, Saudi Arabia and Venezuela recorded a significant reduction in crude production in the same month. Saudi Arabia produced 10.53 mbpd in October, which was below the 10.58 recorded in the previous month.