Saudi Arabia: OPEC oil prices hit 14-year low on ample oil supply and uncertain global outlook
February 5, 2016
The downward pressure on crude prices that has been observed since mid-2015 remained intact at the outset of the year due to ample availability of oil and uncertainty about the health of the global economy. Against this backdrop, on 20 January, the average price of the Organization of Petroleum Exporting Countries (OPEC) oil basket stood at USD 22.5, which represented the lowest value since 2002. The reading was a sizeable 28.9% lower than on the same day of the previous month and marked a sharp 47.8% drop on an annual basis.
The downward trend in oil prices continues as fears about a sharp slowdown in China, which have not only not receded, but have been exacerbated in recent weeks after the country experienced turbulences in the financial and exchange rate markets early in January. This situation, coupled with uncertainty in other emerging-market economies in particular raised concerns that the global economic recovery could shift into a lower gear. On the supply side, the reintegration of Iran promises to bolster oil production, while the Gulf countries’ aim to retain market share represents yet another major blow to oil prices. Moreover, stockpiles in the United States continue to rise and, despite the current low-oil-price environment, drilling is still relatively robust in the world’s largest economy.
After recording a record low on 20 January, oil prices recovered slightly in the following days. Although the global oil glut is not showing signs of abating, rumors that some OPEC members and Russia are considering a coordinated action to cut production have raised hopes of a prompt stabilization of crude prices.
OPEC pumped 32.18 million barrels per day (mbpd) in December (this included Indonesia, which re-activated its OPEC membership), which was down from the 32.39 mbpd extracted in November. According to the latest OPEC Monthly Oil Market Report, the decrease in output mainly reflected lower production in Iraq, Nigeria and Saudi Arabia as well as, to a lesser extent, in Kuwait and Venezuela. On the other hand, Iran, Libya and, Nigeria all recorded production increases in the same month. Saudi Arabia produced 10.09 mbpd of oil was in December, which was less than the 10.15 mbpd tallied in November.