The rally in oil prices that began after oil prices hit a 13-year low in January remains intact. This is in spite of the multiple failed attempts of key-oil-producing countries to reach an agreement on output ceilings. The price of the Organization of Petroleum Exporting Countries (OPEC) oil basket hit a nearly-seven-month high of USD 45.6 per barrel on 2 June. Although this represented a 7.3% gain over the same day of the previous month, oil prices are still down 26.9% on an annual basis.
The 2 June OPEC conference resulted in another unfruitful attempt to reach an agreement on oil production. That said the members were under little pressure this time to take any action as oil prices have been on an upward trend in recent months. Moreover, attendees determined that supply and demand are gradually converging and that the crude market is undergoing a rebalancing process. Behind the scenes, the main debate was weather the cartel should agree on a general oil production freeze for all OPEC countries—a move defended by Saudi Arabia and its Gulf allies—or reestablish country-specific quotas as Iran and some financially-strapped nations suggested. The next OPEC conference is scheduled for 30 November.
Oil prices are gradually recovering some of the ground lost in recent years as declining oil-related investment is finally translating into lower oil supply. Moreover, other factors such as militants’ attacks on oil facilities in Nigeria, fierce fighting around oil terminals in Libya and a wildfire in one of Canada’s principal oil regions are also adding upward pressure on oil prices. On the other hand, healthier demand from some emerging markets, particularly India, as well as developed nations is boosting overall demand.
OPEC pumped 32.44 million barrels per day (mbpd) in April, which was up from the 32.25 mbpd extracted in March. According to the latest OPEC Monthly Oil Market Report, April’s increase in output mainly reflected much stronger production in Iran, Iraq and the United Arab Emirates. On the other hand, Kuwait and Nigeria recorded significant production declines in the same month. Saudi Arabia produced 10.13 mbpd in April, which matched its output in the previous month.
FocusEconomics Consensus Forecast panelists expect oil production in Saudi Arabia to average of 10.14 mbpd this year. In 2017, our panel of analysts sees crude output remaining broadly stable at 10.17 mbpd.
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Note: Price of the OPEC oil basket in USD per barrel.
Source: Organization of the Petroleum Exporting Countries (OPEC).