Saudi Arabia: Oil prices edge up in January on OPEC production cuts
February 1, 2018
Despite a boom in U.S. shale oil supply, the continuing agreement between OPEC members to reduce production and strong global demand for the black gold have continued boosting oil prices, which rose in January to levels last seen in November 2014. The OPEC oil basket traded at USD 66.3 per barrel on 31 January, a 2.8% increase from the same day in December. The price was up 27.0% over the same day in 2017.
The robust price dynamics are largely a reflection of strong fundamentals, with a global economic expansion that has seen all major world economies growing strongly in 2017, lifting commodity prices. On the supply side, shale oil production in Canada and the U.S. is booming, driven by higher prices. While U.S. production exceeded 10 million barrels per day (mbpd) for the first time since 1970 in January, this surge has been offset by the continuing oil cap agreement led by Saudi Arabia and Russia, limiting global crude output.
Indeed, the deal, which has been extended to December 2018, was largely followed by most OPEC and non-OPEC participants alike, with a record conformity level of 129% in December among all members. The success of the accord has so far exceeded expectations, so much so that its members may revise upwards their production targets in the near future.
Meanwhile, output was largely stable in December among OPEC members. According to the cartel’s latest Monthly Oil Report, combined oil output in OPEC countries increased 42 thousand barrels per day, from 32.37 mbpd in November to 32.42 mbpd in December, on the back of higher output in Algeria, Angola and Nigeria. Conversely, output decreased sharply in Venezuela. Crude output in Saudi Arabia fell from 9.93 mbpd in November to 9.92 mbpd in December.
Author: Joffrey Simonet, Economist