Saudi Arabia: Oil prices surge in early January on mounting geopolitical risks
Oil prices jumped in the aftermath of the assassination of Iranian Major General Qasem Soleimani by a targeted U.S. drone strike on 3 January, as markets were anticipating retaliation from Iran. On 10 January, the OPEC oil basket traded at USD 67.0 per barrel, a 2.1% increase from the same day in December. Moreover, the price was 12.7% higher than on the same day in 2019 but down 1.4% from the start of the year.
Iran’s retaliation materialized on 8 January when the country fired a series of ballistic missiles at two U.S. military bases in Iraq. While no casualties were recorded, with many analysts suggesting the strike was in fact deliberately intended to avoid casualties, markets were unnerved by the risk of a potential military escalation. President Donald Trump’s speech on the same day alleviated some fears as he backed away from an all-out conflict with Iran, although geopolitical risks remain elevated in the region, which is supporting oil prices. Around 30% of the world’s seaborne shipments pass through the Strait of Hormuz every day.
News that China and the United States will likely sign a “phase one” trade deal on 15 January, as well as the decision by OPEC+ to deepen oil production cuts until March 2020, also supported oil prices in recent weeks.
Combined crude oil output among OPEC members fell slightly from 29.74 million barrels per day (mbpd) in October to 29.55 mbpd in November, mostly reflecting Saudi Arabia limiting oil production following a surge in October when the Kingdom recovered from the terrorist attacks on oil facilities in September. Saudi output fell from 10.00 mbpd in October to 9.85 mbpd in November. Oil production also declined in Angola, Iran and Iraq, although sizeable gains were recorded in Ecuador, Kuwait and, to a lesser extent, Venezuela.