Oil price slump puts Saudis back where they started
london — Saudi Arabia has ended up with precisely what it wanted to avoid. Its output cut has left it supporting rival producers, while its sacrifice of volume has yielded little in the way of higher prices. Crude fell back on Thursday to levels not seen since before the producer group announced its historic oil output cuts on November 30. What went wrong, and where do they go from here?
First things first. The oil price jumped after Opec announced its decision to cut output by around 1.2 million barrels a day. It rose further when a group of non-Opec countries joined them the following month.
The crude oil market barely batted a sleepy eyelid when the cuts began at the start of January. It rolled over with a gentle snore when the first month’s production figures showed an almost unprecedented level of compliance of over 90 per cent among the Opec countries who were party to the deal.
Saudi oil minister Kahlid Al Falih said last week that global oil stockpiles have been slower to decline than Opec had hoped. In fact, they don’t seem to be declining at all.
Total US inventories of crude and refined products remain more than 20 per cent above a five-year average level that includes the last two years of rising stockpiles. Comparing it with 2010-2014, the surplus is more than 30 per cent higher than average.
In Europe, a 5.4 million barrel reduction in crude oil inventories in February was entirely offset by increases in gasoline and middle distillates, according to Euroilstock data. Meanwhile, China built crude oil stockpiles by nearly 30 million barrels last month, according to analysis by Vienna-based consultants JBC Energy. The effectiveness of the agreed output cuts has been undermined by the failure of some to reduce output as they pledged and by rising production from Libya and Nigeria, who were excluded from the deal. But the biggest impact has come from the surge in US production that was beginning even as the cuts were being discussed.