Saudi Arabia: Oil prices rise on speculation about a market-stabilization deal
September 1, 2016
Oil prices have resumed the upward trend in place since their 13-year low in January, following a temporary decline in July. The Organization of Petroleum Exporting Countries’ (OPEC) oil basket traded at USD 43.9 per barrel on 31 August, an increase of 12.7% over the same day of the previous month. While oil prices have recovered an astonishing 40.4% since the start of the year, they are still down 6.6% on an annual basis.
Oil prices were negatively affected in July by rising risk aversion following the Brexit vote and fears about oversupply as some oil-producing countries ramped up their production again following a number of disruptions. However, in August, oil prices benefited from increasing speculation that major oil producers could take action to shore up oil prices. On 8 August, the oil cartel announced an informal meeting to help stabilize the oil market on the sidelines of an energy conference scheduled for 26–28 September in Algeria. The markets welcomed the decision of Iran’s oil minister Bijan Zanganeh to attend the gathering and positive comments from Gulf officials about the possibility of an oil-output freeze. September’s meeting in Algeria follows a similar initiative in April where OPEC and non-OPEC countries were unable to reach an agreement as Saudi Arabia refused to join any deal without Iran. Iran is seeking to recover its pre-sanctions production level of around 4.0 million barrels per day (mbpd) and, according to Zanganeh, the country reached a production level of 3.85 mbpd in August. A successful deal in September now looks more feasible since Iranian production is approaching its pre-sanctions levels.
OPEC pumped 33.11 mbpd in July, up from the 32.06 mbpd extracted in June. According to the latest OPEC Monthly Oil Market Report, July’s increase in output mainly reflected stronger production in Iraq, Saudi Arabia, the United Arab Emirates and, to a lesser extent, in Iran. On the other hand, Libya, Nigeria and Venezuela recorded significant production declines in the same month. Saudi Arabia produced 10.48 mbpd in July, which matched the output in the previous month.