Oil prices rose Monday following news that Saudi Arabia says it will cut its crude exports starting next month and Nigeria agreed to cap its output once it has climbed to 1.8 million barrels a day.
September West Texas International crude futures rose 1.3% or 57 cents, to settle $46.34 a barrel in New York, while Brent crude futures ended 42 cents, or 0.9% higher, at $US48.48 a barrel.
Saudi’s promise came at a meeting of OPEC monitoring committee and Russia in St Petersburg.The meeting of energy ministers said the 1.8 million barrels a day output-cap agreement could be extended beyond next year’s first quarter if needed.
Saudi Arabia, which is the world’s largest oil exporter, agreed to limit its exports at 6.6 million barrels a day, while Nigeria also committed to taking part in production cuts if it reaches a production level of 1.8 million barrels a day. Nigeria currently produces around 1.7 million barrels a day.
Saudi Arabia’s energy minister Khalid al Falih said “We are going to forcefully demand participation of all.” He added they would escalate matters to “leadership beyond oil ministers if we do not see a response”, saying the kingdom would not permit certain countries to “free ride” as others enact drastic curbs.
Western newsagencies said that Mr Falih’s comments illustrate how some of the largest producers in the deal are losing patience with smaller members as their attempt to end the three year old oil glut fails to lift price. “[We are] not going to allow other countries to free ride and undercut the agreement…everyone needs to contribute,” he said.
Alexander Novak, Russia’s energy minister, said: “We insist and demand that all of the countries have 100 per cent conformity.”
The kingdom will cap its exports in August at 6.6m b/d, a level that is 1m b/d lower than last year. Mr Falih gave no indication this sharp drop in exports will be extended past the summer, when Saudi Arabia’s domestic demand is at its highest due to soaring use of crude in power plants to feed air conditioners in the desert kingdom.
“We have already informed our customers of a deep cut in our August allocations,” Mr Falih said. “August is going to experience the maximum demand within the Kingdom of Saudi Arabia.
As a result [we are] putting a very firm cap on our exports at 6.6m b/d,” he added.”We are going to be exporting 6.6m b/d in the weeks to come in August.” The monitoring committee also recommended producers may need to extend the supply deal beyond the first quarter of 2018.
“We must acknowledge that the market has turned bearish with several key factors driving these sentiments,” Minister al-Falih told a meeting of a committee that monitors the deal between OPEC and non-OPEC states, Reuters reported.
The committee did not look to cap Libyan output as it said its production was unlikely to top 1 million bpd in the near future compared to its nominal pre-crisis capacity of 1.4 million-1.6 million bpd.
Saudi Arabia and Kuwait have cut more than they pledged but others, such as the United Arab Emirates and Iraq, have shown relatively weak adherence to the limits. That sounds like ‘cheating’ an old OPEC characteristic.
The Saudi minister said global oil demand was expected to grow by about 1.4 million to 1.6 million bpd next year, similar to this and so should more than offset rising US output which could top 9.9 million barrels a day (its currently more than 9.35 million barrels a day).