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Saudi Arabia Commodities March 2019

Saudi Arabia: OPEC+ output cuts continue to boost oil prices

The recovery in oil prices that started in late December—after they had sunk to a nearly six-month low—continued in recent weeks, supported by oil production cuts implemented by OPEC and key non-OPEC members. On 28 March, the OPEC oil basket traded at USD 66.4 per barrel, a 1.7% increase from the same day in February. While the price was up 28.83% from the start of the year, it was only 0.5% higher than on the same day in 2018.

The Joint Ministerial Monitoring Committee, which is in charge of scrutinizing countries’ commitment to the oil cut deal, announced on 18 March that the conformity level reached almost 90% in February, up from 83% in January. That said, OPEC has implemented the bulk of the cuts; Russia’s compliance to the deal has been notably lax, which has drawn criticism from other signatories of the deal. The day before, Alexander Novak, Russia’s energy minister, stated that Russia plans to reach its target output by April.

At the committee meeting on 18 March, participants in the deal canceled its OPEC and non-OPEC ministerial meeting scheduled for 18 April. The cartel thus postponed deciding whether to extend the oil cut deal beyond the June deadline to the 25–26 June meeting, providing more time to gauge the impact of U.S. sanctions on Iran and Venezuela before making its decision. Of particular importance, the U.S. has not yet confirmed whether it will extend sanction waivers on Iranian oil, which expire in May, while OPEC+ remains divided on whether production cuts should remain in place. Although Saudi Arabia is in favor of maintaining the current curbs until the end of the year, Russia may only agree to a three-month extension. Meanwhile, U.S. President Donald Trump continued to pile further pressure on OPEC and, on 28 March, he urged the cartel to pump more oil, criticizing that oil prices are “getting too high”.

Combined crude oil output among OPEC members declined by 221,000 barrels per day month-on-month to 30.55 million barrels per day (mbpd) in February, according to the cartel’s latest monthly report. The reading mainly reflected much lower output from Venezuela, as well as in Iraq. Oil production in Saudi Arabia also declined significantly to 10.09 mbpd (January: 10.17 mbpd).

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