Saudi Arabia: Oil prices stabilize at the outset of the year
February 3, 2017
Oil prices have been rising since the 30 November agreement to cap production, though the pace of the increase has now slowed. The Organization of the Petroleum Exporting Countries’ (OPEC) oil basket hit an over one-and-a-half-year high on 3 February and traded at USD 54.2 per barrel, an increase of 2.1% from the same day in January and an astonishing 89.3% recovery the same day in 2016.
Oil prices stabilized at between USD 50 per barrel and USD 55 per barrel in the first weeks of 2017 following the short rally that had followed the 30 November oil deal. Analysts are now focused on three key issues that will determine the evolution of oil prices in the coming months. Firstly, they are skeptical about whether OPEC members will be able to stick to their oil production quotas given their poor past record. Although the oil cut deal was due to be implemented on 1 January, some OPEC countries had already trimmed their production in December, but no official data is available for January yet to corroborate whether the reduction has continued in 2017. Secondly, the increase in drilling activity in the United States as a result of higher crude prices also has the potential to limit any sharp rise in oil prices. According to private sector estimates, the number of oil rigs in the United States have increased by 106 since the OPEC deal in November. Third and finally, markets are increasingly concerned that the new U.S. sanctions against Iran could extend to Iran’s crude industry, thereby affecting oil supply.
According to the latest OPEC Monthly Oil Market Report, combined oil output in OPEC countries in December decreased to 33.09 mbpd from 33.31 mbpd in November, mainly reflecting a plunge in production in Saudi Arabia, Nigeria and, to a lesser extent, in Venezuela. Of this, Saudi Arabia produced 10.47 mbpd in December, which was below November’s 10.62 mbpd. Conversely, Angola, Iraq and Libya recorded a significant increase in crude production in the same month.