Saudi-led OPEC cut plans in doubt as oil price hits seven-month low

Libya, Nigeria and the US have increased their overall output since the start of 2017, damaging an OPEC plan to cut output and stabilise the price per barrel.

MENA

2 min read

The New Arab

22 June, 2017

Two men in discussion outside the Saudi stock market, the Tadawul [AFP]

Oil prices rebounded slightly on Thursday morning, just one day after prices reached a seven-month low, in a fresh blow to Saudi-led plans to increase oil prices through production cuts.

US crude futures closed at $42.53 on Wednesday, its lowest level since August 2016, before increasing 6 cents on Thursday morning.

Market pundits predict that increased production from Libya, Nigeria and the US has harmed OPEC's November Saudi-sponsored deal to bolster the average price of oil with an overall cut in output.

The price of crude has dropped by 20 percent since February, suggesting that OPEC's plan may not be working.

The Riyadh sponsored plan involved a cut in OPEC production of 1.8 million barrels per day, with Saudi Arabia showing the way with the largest cut.

One economic expert has predicted the weakening oil price may be a sign that general inflation in the global economy is on the decline.

A senior Bloomberg reporter also noticed there was a weekly drop in crude futures, coinciding with the US' petroleum storage report, released every Wednesday.

Under the November deal, Iran was the only country with permission to increase production to control a freefalling average price per barrel.

The Saudi oil minister said in May the plan to cut production would extend from its initial six month period to the entirety of 2017.

Yet Nigeria and Libya were also given special dispensation by the oil cartel and their respective output has increased massively in recent months.

Since the recent fighting over Libya's oil crescent has settled down, the country's oil production has accelerated to near pre-civil war levels.

Libya's National Oil Corporation reported in May it would "raise production to 1.32 million barrels per day (bpd) by the end of 2017, at a cost of $550 million". Tripoli reported 1.2 million bpd in exports in 2011.

The Saudi oil minister said in May the plan to cut production would extend from its initial six month period to the entirety of 2017.

"Based on the consultations I have had with participating members I am rather confident the agreement will be extended into the second half of the year and possibly beyond," Khalid al-Falih said.

The Saudis are desperate for oil prices, on which their revenues heavily depend, to improve as deteriorating prices have forced Riyadh to enact austerity measures and increase its borrowing.