RIYADH: Saudi Arabia’s crude oil production slipped in August to 10.63 million barrels per day (bpd), figures released by Reuters showed. The kingdom had pumped 10.67 million bpd of crude in July, the highest level in its history, on higher domestic demand in the summer and more exports. This came as the OPEC heavyweight leads a drive to revive a global oil output freeze initiative.
Saudi Arabian and Russia said last Monday that they would form a strategic energy partnership designed to help stabilize oil markets – a partnership which could envisage freezing oil output to help stabilize the prices. On the same front, Russia’s President Vladimir Putin earlier said a potential oil output freeze deal among oil-exporting countries should involve some compromise on Iran’s production levels.
“I think that from the point of view of economic expediency and logic, it would be right to find some sort of compromise” on the Iranian output level, Putin told Bloomberg. He said countries now recognize that Iran should be allowed to continue raising production as sanctions have been lifted against the country. Oil prices retreated Friday, losing a chunk out of the previous session’s large gains that had been won thanks to a plunge in US crude stockpiles.
Both main contracts had soared more than two dollars Thursday and Brent briefly went above $50 a barrel after the US Department of Energy said the country’s commercial crude inventories slumped by 14.5 million barrels, the sharpest weekly drop in 17 years. But with analysts not expecting a repeat this week, prices fell on Friday. They said the decline was attributed to the suspension of imports and shutdown of some production owing to Hurricane Hermine, which passed through the Gulf of Mexico in late August.
“The reason behind the enormous drawdown is transitory, and does not influence the demand-supply situation of the oil market,” said IG market strategist Bernard Aw. “One week’s worth of data does not make a trend.”Around 1100 GMT, US benchmark West Texas Intermediate for delivery in October was down 66 cents at $46.96 a barrel. Brent North Sea crude for November delivery slid 70 cents to $49.29 compared with the close on Thursday.
The market has been fixated in recent weeks by an upcoming meeting of OPEC and non-cartel member Russia to discuss ways of tackling a global supply glut that has hampered prices for more than two years.
Overproduction in the markets resulted in crude prices striking a near 13-year low below $30 at the start of 2016. While officials from Russia and Saudi Arabia have sought to soothe concerns ahead of this month’s gathering in Algiers, experts are skeptical whether an agreement can be reached. A previous attempt at a production cap in April was derailed by Iran, which refused to join in talks as it ramps up output after the lifting in January of years of nuclear-linked sanctions.
“Of course both Russia and Saudi Arabia would have liked to have a higher oil price than the current $50,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “Over the past week they have talked about stabilizing the market. But what do they really mean because the oil market is today in many ways actually fairly balanced. “Supply is more or less equal to demand and annualized price volatility is right on to what it normally has been historically of about 35 percent.”
Schieldrop said the market was in fact moving away from a supply glut situation, with inventories expected to fall next year and beyond. “What is however highly abnormal and thus imbalanced is the current very low level in upstream oil investments,” he noted.
Iran had previously made it clear that it would not join an oil freeze plan promoted by Saudi Arabia. Officials in Tehran repeatedly announced that Iran would join the plan after its output reaches 4 million barrels per day. The country had been under multiple years of sanctions that limited its oil exports to 1 million barrels per day and also barred foreign investments in its oil industry. The sanctions were lifted in January after a nuclear deal that Iran had reached with the so-called P5+1 group of countries – the five permanent members of the Security Council plus Germany – came into effect.
