Saudi Arabia: OPEC oil prices on the rise ahead of Doha meeting
April 11, 2016
Oil prices continued to rise in the last few weeks following the announcement made by key producers that they were considering freezing oil production at the 17 April meeting in Doha. Against this backdrop, the price of the Organization of Petroleum Exporting Countries (OPEC) oil basket hit a two-and-a-half month high of USD 36.7 per barrel on 22 March. In the following days, however, gains stalled as Iraq, OPEC’s second-biggest producer, stated that it raised output to record levels in March. While the announcement of the meeting drove the rise in oil prices that has been observed in recent weeks, other factors also contributed to the rally. Crude prices were also supported by China’s plan to boost its economy along with industry developments in the U.S., where some companies halted fracking activities and the number of rigs drilling for oil declined.
On 8 April, the price of the OPEC oil basket was USD 34.7, which represented a mild 1.0% loss over the same day of the previous month. Oil prices were up 11.0% on a year-to-date basis, but they were still down an astonishing 36.1% on an annual basis.
In February, Ministers from Qatar, Saudi Arabia, Venezuela and non-OPEC member Russia announced that their respective countries would freeze oil production at January levels in an attempt to boost crude prices, which hit a multi-year low at the start of the year. This initiative was supported by other major producers such as Kuwait, Nigeria and Oman and represented the first cooperation between OPEC members and Russia, the world’s second-largest producer, since 2001. While Nigeria’s petroleum minister stated on 3 March that the meeting to discuss the details of a possible pact would take place in Russia on 20 March, two weeks later, Qatar’s oil minister announced that the oil-cap group will be gathering on 17 April in Doha.
According to Qatari sources, 15 oil-producing countries, which account for 73% of global oil output, have confirmed that they will attend the meeting. Despite expectations that a deal could be reached in Doha, analysts warn that many hurdles have yet to be overcome in order to reduce the global oil glut. Iran’s refusal to participate in the deal as the country is boosting supply after years of economic sanctions, doubts regarding whether Iraq will join the deal and the fact that most of the major producers are currently pumping oil at record highs all cast uncertainty regarding the viability of any pact. Nevertheless, the meeting could represent an important step toward a greater coordination between key crude producers and may pave the way for a more comprehensive deal in the future.
OPEC pumped 32.28 million barrels per day (mbpd) in February, which was down from the 32.45 mbpd extracted in January. According to the latest OPEC Monthly Oil Market Report, February’s decrease in output mainly reflected weaker production in Iraq, Nigeria and the United Arab Emirates, while Kuwait and Saudi Arabia recorded significant production declines in the same month. Saudi Arabia produced 10.14 mbpd in February, which was slightly above the 10.13 mbpd tallied in January.
Meanwhile, in Saudi Arabia, Deputy Crown Prince Mohammed bin Salman announced on 1 April that the government is planning to sell a stake of its state oil company, Aramco. Aramco is pumping more than 10 mbpd and, once listed, the company could be worth more than USD 2.5 trillion. The initial public offering of “less than 5.0%” could happen as soon as next year and the remaining shares of the company would be part of the Public Investment Fund (PIF) owned by the Saudi government. With this move, the government aims to create the world’s largest sovereign wealth fund, which would be in charge of ending the country’s dependence on oil by transforming the base of the economy.