Stay course on cuts, Saudis urge oil bloc
In Russia, lagging compliance noted
Saudi Arabia on Monday emphasized its commitment to raising oil prices, promising deep cuts to exports next month even as OPEC and its allies allowed Libya and Nigeria to keep increasing output.
Shipments from the Organization of Petroleum Exporting Countries’ largest producer will be capped at 6.6 million barrels a day in August, 1 million barrels fewer than a year earlier, Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih told reporters Monday after meeting fellow producers in St. Petersburg, Russia. Nigeria and Libya — both exempt from cutting — will be allowed to increase output to their targeted levels, although both would struggle to achieve that, he said.
The Saudi minister pushed to improve adherence to the production cuts from the nations participating in the deal. Compliance dropped to 92 percent in June from 110 percent in May, according to people familiar with OPEC’s internal data.
“Some countries continue to lag” in their compliance “which is a concern we must address head-on,” Al-Falih said. “Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data in our monitoring.”
The Joint Technical Committee, which monitors compliance with the cuts, will now also study data on exports, he said.
Despite the renewed focus on exports, the meeting of ministers from OPEC and non-OPEC producers left their supply deal largely unchanged, betting that rising demand will combine with the existing curbs to rapidly deplete fuel stockpiles and buoy prices in the year’s second half. That could prove to be a risky wager if production from nations not bound by any restrictions keeps growing to fill the gap left by others.
Markets appear to have shrugged off the announcement meant to address concerns that production cuts agreed upon last year are failing to achieve their goal of pushing prices higher.
“Did Saudi Arabia pull a rabbit out of the hat?” wrote Helima Croft, an oil analyst at the investment bank RBC Capital Markets. “No.”
West Texas Intermediate crude for September delivery rose 57 cents to settle Monday at $46.34 a barrel on the New York Mercantile Exchange. Brent crude for September settlement was 54 cents higher, closing at $48.60 a barrel on the London-based ICE Futures Europe exchange. Brent, the international benchmark, is trading at a gain of less than $2 since the cuts were agreed on last year.
Auto club AAA said the average price for a gallon of gasoline in Arkansas on Monday was $2.01, up from $2.00 a week ago and $1.96 a year ago. The national average price Monday was $2.28.
In a statement after the meeting, OPEC seemed content with mildly tough talk, chastising — but not naming — other countries for failing to follow through with promised cuts to output.
“There is still room for improvement by some participating producing countries,” the cartel said. “All participating producing countries must promptly reach full conformity.”
Russia’s energy minister, Alexander Novak, complained that “some countries are not yet fully implementing” the cuts.
“Despite the high level of compliance with the agreement, we insist on all countries fulfilling their obligations 100 percent,” he said, in comments reported by Russian state news agencies. Russia is not a member of OPEC but signed on to last year’s agreement to curb exports.
While demand will be almost 2 million barrels a day higher in the second half of the year compared with the first six months, according to OPEC estimates, rising supply inside and outside OPEC suggests the cuts won’t put a significant dent in teeming global oil inventories.
Libya and Nigeria are a big part of OPEC’s problem. The African nations, granted an exemption last year from cuts because their output had already been reduced by internal strife, have added 440,000 barrels a day of production in the past two months according to data compiled by Bloomberg. That’s equivalent to about a third of the reductions implemented by fellow OPEC members.
That recovery had prompted speculation that OPEC would seek to limit their production at the St. Petersburg talks, but other members accepted that both countries were still below their full potential.
Nigeria is ready to cap output at 1.8 million barrels a day, if it is able to reach that level, Oman’s oil minister Mohammed Al Rumhy told reporters after the meeting. Its production hasn’t risen that high since February 2016, and oil theft is still hurting output despite the nation’s success ending militant attacks.
Libya has a target of 1.25 million barrels a day, Al-Falih said. That’s almost 50 percent above its average June production of 840,000 barrels a day, according to Bloomberg.
Information for this article was contributed by Wael Mahdi, Grant Smith, Elena Mazneva and Meenal Vamburkar of Bloomberg News, Stanley Reed of The New York Times and by The Associated Press.