Saudi Arabia: Oil prices jump in May–June, on the back of OPEC+’s commitment to gradual production cuts
Oil prices increased in recent weeks, due to OPEC+’s decision to stick to its current production cut regime from May through to July, and amid stronger demand prospects bolstered by solid progress on the global vaccination drive. On 4 June, the OPEC oil basket traded at USD 68.5 per barrel, up 1.5% from the prior month. Meanwhile, the price was 34.3% higher on a year-to-date basis and was 194.6% higher than on the same day last year.
At OPEC+’s latest meeting on 1 June, the cartel decided to maintain its slow and gradual production cut easing schedule through May–July, which benefited prices. Moreover, concerns over rising Iranian supply tapered, with hopes of an end to U.S. sanctions not likely to come to fruition until August at the earliest. Furthermore, oil demand has continued to rise in recent weeks—in part due to the start of the summer driving season, as well as strengthening economic activity in North America and Europe more broadly—pointing to a tightening in the oil market and further supporting prices.
In terms of OPEC production, combined crude oil output among members was virtually stable at March’s 25.1 million barrels per day (mbpd) in April—the latest month for which data is available. This mostly reflected higher output in Iran, which was offset by lower production in Venezuela. Meanwhile, production in Saudi Arabia was relatively unchanged from March’s 8.1 mbpd in April.
Our panelists expect Saudi oil output to average lower in 2021 relative to last year due to its commitment to bolster crude oil prices.
Commenting on the outlook for global oil prices, Edward Bell, senior director at Emirates NBD, noted:
“Our assumption for Brent oil futures were based on OPEC+ attempting to keep oil markets tight and that Iran’s output would return gradually, if at all this year. Based on this week’s OPEC+ meeting we are reaffirming our view on oil prices and maintain an average of USD 70/b in Q3 and Q4 2021 for Brent futures and USD 65/b for WTI over the same periods.”