The announcements by Saudi Arabia and the United Arab Emirates for further cuts caused oil prices to rise more than 2% last week.
Saudi Arabia promised to reduce exports for the month of August while applying more pressure on fellow OPEC countries to increase compliance with the output cuts that were agreed on.
The United Arab Emirates is only averaging a compliance of 54% of its pledged 139,000 barrels of oil per day cut, but the country promises to reduce shipments of Murban, Das, and Upper Zakum crudes by 10% beginning in September.
“The United Arab Emirates is committed to its share in the OPEC production cut,” said the Minister of Energy, Suhail Al Mazrouei.
OPEC countries have been slowly slacking on their compliance rates with the output cuts. Libya and Nigeria are exempt from the cuts and have increased their production steadily. Ecuador announced earlier this month that they could no longer comply with the production cuts because the country needs money. Coupled with the continuing diplomatic crisis with Qatar, OPEC has been unable to prevent oil from falling into a bear market recently.
But the announcements from Saudi Arabia and the United Arab Emirates helped Brent crude futures to rise a little over a dollar to $49.64 per barrel when announced. West Texas Intermediate also rose more than a dollar to $47.35 per barrel.
According to Energy Minister Khalid al-Falih, Saudi Arabia will limit its crude exports to 6.6 million barrels of oil per day for the month of August, which is nearly 1 million barrels per day lower than August 2016.
OPEC leaders met in St. Petersburg, Russia yesterday to discuss extending the current 1.8 million barrels of oil per day cut until March 2018 and possibly longer.
Another piece of good news from the OPEC meeting is that Nigeria will voluntarily cap its output to 1.8 million barrels of oil per day. JBC Energy, a Vienna-based consulting company commented, “But the most concrete indication coming out of the meeting was that Nigeria would agree to implement production adjustments.” The country’s oil production is still far from stable though, with Royal Dutch Shell’s Nigerian subsidiary announcing the shutdown of the Trans Niger pipeline because of leak last week. The shutdown effectively reduces daily output by 180,000 barrels of oil per day.
If OPEC members could boost their compliance to 100%, then nearly 200,000 more barrels of oil per day could be removed from global markets, according to Russian Energy Minister Alexander Novak.
Consultants from banking giant Barclays mentioned, “In our view… these meetings were aimed at saving face and diverting the market’s attention away from Iraq’s poor compliance, shale’s resilience and Libya’s and Nigeria’s markedly higher output.”
OPEC still has a hard road ahead, be it lower compliance, higher U.S. shale production, or rising Asian demand for crude, the global oil market remains in a constant flux with an almost unpredictable future.
Article written by HEI contributor Raymond Arrasmith.