Saudi Arabia: Oil prices rise further in December; Saudi Arabia to cut production from February
January 4, 2021
Oil prices continued to rise over the last month, supported by positive developments on the Covid-19 vaccine front and solid Asian demand, notwithstanding tougher social distancing restrictions in many Western countries. On 31 December, the OPEC oil basket traded at USD 50.2 per barrel, up 8.2% from the prior month. That said, the price was 26.1% lower than at the start of the year.
Looking at the most recent OPEC oil market report, crude oil output among members increased from 24.4 million barrels per day (mbpd) in October to 25.1 mbpd in November (the latest month for which data is available). This mostly reflected surging output in Libya thanks to October’s ceasefire. OPEC revised down its 2021 oil demand estimates from 96.3 mbpd to 95.9 mbpd due to uncertainty surrounding Covid-19. However, this is still up from an estimated 90.0 mbpd in 2020.
Members agreed to increase output by 500,000 bpd from January. However, in view of surging Covid-19 cases in many countries, Saudi Arabia agreed to make voluntary cuts of 1 mbpd in February and March, which will weigh on its economy in the first quarter. Russia and Kazakhstan will increase output slightly in February and March, with other members keeping production unchanged.
Our panelists expect Saudi oil output to recover slightly in 2021 relative to last year—enabling the energy sector to contribute positively to GDP—but to remain constrained by ongoing OPEC+ cuts nonetheless.
Author: Steven Burke, Economist