Saudi Arabia drives rise in OPEC oil output

Uptick in production comes ahead of a crucial meeting of cartel later this month

LONDON— OPEC pumped more oil last month driven by higher output from Saudi Arabia, the cartel’s de facto leader, which has for more than a year led a coalition of big producers in curbing production.

Total oil production in the Organization of the Petroleum Exporting Countries increased by 35,000 barrels a day in May, month-on-month, to average 31.87 million barrels a day, the cartel said Tuesday in its closely watched monthly report. Output in Saudi Arabia jumped by 85,500 barrels a day but was partly offset by production outages in Nigeria, Venezuela and Libya, the report said, citing secondary sources.

However, Saudi Arabia’s own data for May showed it increased its own output by 161,400 barrels a day, according to the report. OPEC every month publishes two sets of oilproduction data: one based on what its members’ governments tell the cartel and another based on its own analysis of the oil market. OPEC’s analysis is generally considered more reliable, but the Saudi’s own data is closely watched for signals about its intentions to produce more or less oil.

The uptick in production from Saudi Arabia — the world’s largest exporter of crude — comes ahead of a crucial OPEC meeting next week in Vienna. At the meeting, the cartel’s members and other producers are expected to discuss easing a coordinated effort to hold back crude output.

OPEC and 10 countries outside the cartel, including Russia, have been cutting crude production by roughly 1.8 million barrels a day since the start of last year to rein in a supply glut that had weighed on prices since late 2014.

The deal, which has helped to bolster crude prices by more than 40 per cent, is set to expire at the end of 2018. But with geopolitical risks to supply in Iran and Venezuela — two OPEC members — having helped Brent crude temporarily breach the symbolic $80 (U.S.) a barrel level last month, the Saudis and Russians have in recent weeks indicated a willingness to exit from the agreement sooner than planned.

“Draws in crude oil inventories, healthy oil demand and geopolitical developments have supported this rising (price) trend,” the OPEC report said. However, the report added, “recently, crude oil futures have lost some momentum amid uncertainty as traders prepare for potentially more supply returning to the market.”

Brent — the global oil benchmark — was trading down 0.5 per cent at $76.07 a barrel around midday in London.

Ehsan Khoman, head of research and strategy for the Middle East at MUFG Bank, Ltd., noted that the “geopolitical risks which remained front and centre for most of May have now been superseded by a policy shift by OPEC+, wherein they are deliberating to revive output on concerns that prices have risen too much, leading to weakening demand and a slowdown in the global economy.” Higher prices have also spurred U.S. production.

OPEC raised its forecast for non-OPEC supply for this year by130,000 barrels a day, to 59.75 million barrels a day, largely as a result of burgeoning U.S. shaleoil production. The cartel predicts total U.S. crude output to grow in 2018 by more than double the rate last year, to average a record 10.51 million barrels a day.

OPEC kept its world oil-demand forecasts largely unchanged, saying it expects a growth rate of 1.65 million barrels a day, meaning demand should stand at 98.85 million barrels a day this year.

Commercial oil inventories in the Organization for Economic Cooperation and Development — a group of industrialized, oilconsuming nations that includes the U.S. — fell in April by 6.7 million barrels month-onmonth, to 2.811 billion barrels. That is 26 million barrels below OPEC’s target of the last fiveyear average.