Saudi Arabia: Oil prices continue to rally at the outset of the year
January 4, 2018
Political tensions in Iran and a tight oil market propelled oil prices at the outset of the year to levels last seen in December 2014. The OPEC oil basket traded at USD 65.1 per barrel on 3 January, a 5.5% increase from the same day in December. The price was up 22.6% over the same day in 2017.
Although the surge in oil prices reflects strong fundamentals, prices have also been driven up due to increased political tensions in the Middle East. Global economic dynamics continue to perform robustly amid improving job markets, loose monetary policies by most key central banks and a general rise in commodity prices. On the supply side, the oil deal led by Russia and Saudi Arabia, which was extended to December 2018, continues to limit crude output. OPEC and non-OPEC members participating in the oil cap agreement continued to deliver in November, reaching the highest conformity level ever of 122%.
Oil prices were also supported by rising political tensions in Iran. Anti-government rallies engulfed many cities across the country as Iranians are ravaged by high unemployment, particularly among women and young people. Moreover, demonstrators claimed that Iran’s military interventions in the Middle East are jeopardizing government spending on welfare, while the opening of the country has not yet had a meaningful impact on ordinary citizens. Although there is little risk that unrest in Iran will disrupt oil supply, protests could embolden U.S. President Donald Trump to adopt a tougher stance against Iran.
Meanwhile, output declined in November among OPEC members. According to the cartel’s latest Monthly Oil Report, combined oil output in OPEC countries fell slightly, from 32.58 million barrels per day (mbpd) in October to 32.45 mbpd in November, on the back of lower output in Angola, the United Arab Emirates and Venezuela. Conversely, output increased markedly in Nigeria. Crude output in Saudi Arabia fell from 10.04 mbpd in October to 10.00 mbpd in November.