By Satish Kanady
DOHA: The remarks on ‘oil output freeze’ in August has arrested a 20 percent oil price decline and shift the trajectory of the oil market away from bear territory and towards bull territory. Comments by Saudi Arabia that the kingdom would “discuss any possible action” to “stabilise” prices when Opec members hold an impromptu meeting on the sidelines of an international energy conference in September set the stage for a dramatic turnaround in the oil markets, NBK’s ‘economic udpate’ has noted.
Brent crude surged by almost 22 percent to a high of $50.9/bbl on 22 August from a low of $41.8 per barrel (bbl) on 2 August. The remarks sent hedge funds scrambling to cover their short bets and to rebalance their positions even while fundamentals were pointing to a more protracted rebalancing process. All the more remarkable is the alacrity with which the oil markets embraced the prospect of an output freeze between major producers-the Opec-Russia meeting outcome in Doha last April—suggested that an agreement is highly unlikely.
The International Monetary Fund (IMF) trimmed its global growth forecast by 0.1 percent to 3.4 percent back in July. On the supply-side, there are still question marks about the impact on the supply glut of returning crude streams from crisis-hit OPEC members such as Nigeria and Libya, as well as from Iran. All three are producing at well below capacity, and it may fall on the shoulders of OPEC to accommodate their resurgence. And then, there is the resilience of US shale and its producers’ remarkable capacity to eke out efficiency gains at any given oil price.
Opec crude production surgeed to an eight-year high in July as Saudi Arabia, Kuwait and the UAE boost output to record levels. The output surged to an 8-year high of 33.4 mb/d in July. Saudi Arabia (10.6 mb/d), the UAE (2.9 mb/d) and Kuwait (2.8 mb/d) all turned on the taps to pump at record levels, according to the IEA. And coupled with rising production from Iraq and Iran, Opec’s gulf producers were able to offset declines from the group’s non-Arab producers, notably Nigeria and Venezuela. These two continue to suffer from militant attacks and pullbacks by Foreign Service companies, respectively.
For Saudi Arabia, higher production was motivated partly by export market share considerations and partly by seasonal domestic demand requirements, with the hot summer months requiring greater crude burn for electricity generation. Iraq, Opec’s second largest producer, also continued to ramp up output, by 80 kb/d in July, to 4.3 mb/d. Iran, meanwhile, maintained oil production at around 3.6 mb/d for the third month running, even though output slipped slightly by 20 kb/d month-on-month during July.
