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Saudi Arabia: Persistent global oil glut continues to weigh on OPEC oil prices

October 28, 2015

Oil prices have remained at very low levels after hitting the lowest point since February 2009 on 25 August due to a variety of factors that include strong supply and concerns about the health of the world economy. The average price of the Organization of Petroleum Exporting Countries (OPEC) oil basket stood at USD 43.1 per barrel on 27 October. The reading marked a slight 1.4% decline over the same day of the previous month, while, on an annual basis, oil prices were down by 47.6%.

Prices for oil remain subdued because the main causes of the oil-price-plunge that began last year are far from abating. Many of the world’s key producers are pumping oil at record levels and crude stocks in the United States are buoyant. Moreover, oil output in the United States remains relatively resilient despite low oil prices. This situation, coupled with rising uncertainties over the health of the global economy, is keeping the global crude markets oversupplied. Going forward, the oil glut is likely to persist amid expectations that the re-integration of Iran into the global economy will bolster global oil supply. Furthermore, analysts do not foresee that the oil cartel will scale back output at its next meeting, scheduled for 4 December.

OPEC pumped 31.57 million barrels per day (mbpd) in September despite the fact that the oil cartel had decided to maintain its oil production quotas at 30 mbpd, according to the latest OPEC Monthly Oil Market Report. The print mainly reflected stronger production in Angola, Iraq, Nigeria and the United Arab Emirates, which offset lower output in Iran and Saudi Arabia. The Kingdom’s oil production reached 10.23 mbpd in September, which was less than the 10.27 mbpd tallied in August.

FocusEconomics Consensus Forecast panelists expect oil production in Saudi Arabia to average of 10.04 million barrels per day this year. In 2016, our panel of analysts sees crude output remaining broadly stable at 10.04 million barrels per day.

Author: Ricard Torné, Lead Economist

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Note: Price of the OPEC oil basket in USD per barrel.
Source: Organization of the Petroleum Exporting Countries (OPEC).

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