Saudi Arabia: Trade tensions continue to weigh on oil prices in June
June 27, 2019
Oil prices extended losses in June on the back of rising uncertainty about world economic growth and global oil demand amid intensifying trade tensions between the U.S. and China. On 25 June, the OPEC oil basket traded at USD 65.1 per barrel, a 3.5% decrease from the same day in May. While the price was up 26.2% from the start of the year, it was 9.8% lower than on the same day in 2018.
In recent weeks, oil prices were negatively affected by the escalating trade war between China and the United States as well as concerns about the health of the global economy. However, this was partially offset by intensifying tensions in the Persian Gulf between the United States and Iran, especially after Iran shot down a U.S. drone above the Strait of Hormuz on 20 June.
Looking forward, the evolution of oil prices will be shaped by developments in the Persian Gulf, the long-awaited meeting between Presidents Trump and Xi Jinping at the 28–29 June G20 meeting, which should provide more clarity about the outlook for trade negotiations between the two superpowers, and the 1–2 July OPEC+ meeting. The OPEC-led meeting was postponed in mid-June due to a ratcheting up of political tensions between Iran and Saudi Arabia and is expected to decide whether the oil cartel will extend production cuts, which are set to expire at the end of June. Several official from OPEC countries have hinted that the extension is the most likely outcome given the recent fall in oil prices due to an uncertain global economic outlook.
Combined crude oil output among OPEC members declined by 236,000 barrels per day month-on-month to 29.88 million barrels per day (mbpd) in May, according to the cartel’s latest monthly report. The reading mainly reflected much lower output from Iran and, to a lesser extent, in Nigeria and Venezuela. Oil production in Saudi Arabia declined to 9.69 mbpd (April: 9.77 mbpd). Conversely, higher production was mostly reported in Angola and Iraq.