Saudi Arabia: Rally in oil prices moderates in June on oversupply fears
June 29, 2018
Oil prices traded sideways since hitting the highest level since November 2017 on 22 May. On 27 June, the OPEC oil basket traded at USD 74.3 per barrel, a 0.7% decrease from the same day in May. The price was, however, up 15.3% from the start of the year and was 68.0% higher than on the same day in 2017.
Prices for the black gold came under pressure in recent weeks as Russia and Saudi Arabia stated that they were ready to increase oil supply to rebalance the market, driving down oil prices. For now, however, the words have not yet translated into bold action, and at their 174th meeting that ended on 22 June in Vienna, OPEC members decided to increase output, albeit below what market analysts had expected. Following months of reaching conformity levels of above 150%, OPEC agreed to bring the level down to 100%. While the cartel did not unveil details or quotas of the increase in oil output, officials from Saudi Arabia and the UAE stated that the measure will effectively add “a little bit less than 1 million barrels per day” from OEPC’s current output level. With this move, OPEC countries will seek to also benefit from higher demand for oil and replenish their coffers following years of low oil prices. Meanwhile, the United States continued to pump oil at record rates in recent weeks as the country’s shale oil industry benefits from the current relatively high oil price environment, adding downward pressure on oil prices.
Looking forward, the evolution of oil prices is uncertain. While Russia and Saudi Arabia expressed their willingness to increase supply, the planned economic sanctions against Iran could sharply reduce global oil output. Moreover, the meltdown in Venezuela’s oil industry and supply shortages in Libya are expected to trim global oil supply. The brewing trade war between China and the United States could also affect oil prices if China implements a 25% tariff on U.S. oil imports.
Combined oil output among OPEC members rose slightly from 31.83 million barrels per day (mbpd) in April to 31.87 mbpd in May, according to the cartel’s latest Monthly Oil Report. The increase was mainly due to higher output in Algeria, Angola and Iraq. In contrast, crude output in Libya, Nigeria and Venezuela fell significantly month-on-month. Output in Saudi Arabia rose from 9.90 mbpd in April to 9.99 mbpd in May.