Oil price gets boost from Saudi plan to cut exports
Country’s energy minister pledges it will reduce output to 6.6M barrels per day
NEW YORK— Oil rose as Saudi Arabia pledged deep cuts to its crude exports, while Halliburton Co. said the shale boom is slowing down.
Futures rose 1.3 per cent in New York. Saudi Arabia, OPEC’s largest producer, will limit exports to 6.6 million barrels a day in August, one million lower than a year earlier, Energy Minister Khalid Al-Falih said. Meanwhile, Halliburton, the world’s top fracking-services provider, said U.S. explorers are “tapping the brakes” as oil struggles to breach $50 a barrel.
“He came out and threw that out there at a pretty opportune time,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said of Al-Falih’s pledge.
Oil remains in a bear market amid concern that rising global output will offset the production curbs by members of the Organization of Petroleum Exporting Countries and its allies, including Russia.
The group is likely to become less compliant with its cuts toward the end of this year, with the risk of a domino effect after some members suggested they won’t adhere to their targets, according to JPMorgan Chase & Co.
U.S. shale explorers have helped keep inventories high, but the drilling surge may be plateauing, said Halliburton executive chairman Dave Lesar. Drillers are now “making rational decisions” as prices remain low, he said.
West Texas Intermediate for September delivery rose 57 cents to settle at $46.34 a barrel on the New York Mercantile Exchange.
Brent for September settlement was 54 cents higher, closing at $48.60 a barrel on the London-based ICE Futures Europe exchange. Prices lost 1.7 per cent last week. The global benchmark crude traded at a premi- um of $2.26 to WTI.
The deal that OPEC and its allies have implemented since Jan. 1 focused on production cuts rather than export cuts. On Monday in St. Petersburg, Russia, OPEC Secretary-General Mohammad Barkindo said OPEC was in agreement to study “other parameters.”
“From the market’s point of view, the only thing they care about is exports,” said Amrita Sen, chief oil analyst at Energy Aspects. The focus on exports will be “positive” for the oil market balances, she said.
Libya and Nigeria are a big part of the problem. The countries, granted an exemption last year from cutting because their output had already been reduced by internal strife, added 440,000 barrels a day of production in the last 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 prompted speculation that OPEC would seek to limit their production at the St. Petersburg talks. Now most other producers appear to accept that would be premature.
“We remain supportive of our brothers and partners in both those nations” as they recover, Al-Falih said. “The committee, however, should monitor the impact of such growth in supply on global supplydemand balances.”
The Saudi minister suggested he was pushing to improve implementation of the production cuts from the nations already participating in the deal. Compliance dropped to 92 per cent in June from 110 per cent in May, according to people familiar with OPEC’s internal data. Iraq implemented just 28 of its pledged cuts.
“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.”