Saudi Arabia: Oil prices continue to recover in May–June
Oil prices recovered noticeably over the past month hitting a near three-month high, as previously agreed production cuts in mid-April and easing lockdown measures in most parts of the world supported oil demand prospects. On 5 June, the OPEC oil basket traded at USD 35.46 per barrel, marking an 65.4% increase from the same day in May. That being said, the price was 44.7% lower than on the same day in 2019 and down 47.8% from the start of the year.
Price gains in recent weeks were mainly attributed to OPEC+ production cuts coming into effect at the start of May. The unprecedented cut to production was intended to somewhat balance out oil markets amid extinguished demand due to lockdown measures globally. In May, preliminary data on OPEC+ compliance was around 77% and should improve going forward as Saudi Arabia, UAE and Kuwait agreed to additional cuts to output for June. Moreover, demand conditions are showing some signs of stabilizing as many parts of Asia, Europe and North America partially reopened their economies in recent weeks.
Looking ahead, crude oil prices are expected to remain low this year, despite the recent OPEC+ deal, as containment measures undercut demand prospects and create a supply glut in global oil markets. Nevertheless, OPEC+ agreed in early June to extend the level of production cuts for May and June—which were supposed to be lowered in July—to at least the end of July. Moreover, OPEC+ is expected to meet again in June to discuss whether another extension is needed, possibly to the end of this year, which would likely provide notable price support.
In terms of production, combined crude oil output among OPEC members increased from 28.6 million barrels per day (mbpd) mbpd in March to 30.4 mbpd in April, mostly reflecting higher output from Saudi Arabia, Kuwait and the UAE. Saudi output increased from 10.0 mbpd in March to 11.6 mbpd in April.