After 2020’s unpredicted decline in oil prices and subsequent response by OPEC+ to cut oil production as means to buoy oil prices, the world’s largest exporter Saudi Arabia, plans to reverse its position and increase its production in the coming months. This comes as WTI oil prices have traded to as low as negative $40/barrel back in April 2020, to currently trading at $60.42/barrel. Earlier this month OPEC+ leaders said they would cut production by one million barrels per day, with efforts to raise prices during the months of February and March.
We are a mere 7 days into a new year, and have already seen the first oil rally in the markets. Many factors have played a role in the first rally of the new year. Oil has been tumultuous over the last 11 months but has seen some stability and positivity since Biden’s election win in November. Biden was confirmed by the senate to be the 46th President of the United States of America and he will have a democratic controlled House and Senate to put his plans into action.
OPEC+ came to an agreement earlier this month to institute record-breaking production cuts of nearly 10 million barrels per day. The production cuts were set to take effect on May 1st, but some members have taken it upon themselves to start earlier. Kuwait and Saudi Arabia have both made the decision to start scaling back production to work towards the production cut goal. Saudi Arabia has scaled back production from 12 million barrels per day(bpd) over the weekend to reach its goal of 8.5 million bpd. Kuwait is OPEC’s fourth largest producer and they have also made the decision to start the cuts early. Kuwait’s Oil Minister Khaled Al-Fadhel said that starting the cuts early was because they felt a responsibility to address the market conditions.
Over the weekend, it came as a surprise to the oil industry when prices crashed more than 30% after the recent OPEC+ alliance issued an all-out price war between Russia and Saudi Arabia, leading the market with cheaper oil. During the OPEC+ meeting last week, Russia rejected a proposal to cut 1.5 million barrels per day of production.
Saudi Aramco had its long-awaited initial public offering (IPO) last week debuting on the Tadawul, Saudi Stock Exchange at a valuation of $1.88 trillion. Aramco’s public debut made it the world’s largest IPO ever, toppling the previous record holder Alibaba in 2014 when they raised $25 billion. When the market closed today in the capital city of Riyadh, Aramco had a market value of over $2 trillion.
Recent drone attacks have wreaked havoc on the Saudi Aramco oil facilities along with imposed sanctions on Venezuela and Iran. These events should all be pointing one direction for the crude prices…..up. Instead of the anticipated price increase, the recent fear of recession has helped keep the market in check.
The events over the weekend in Saudi Arabia are causing concerns throughout the nation. The oil installations attacked resulted in the removal of six percent of daily world consumption, which will have an impact on motorists and consumers in the United States as early as today. The attack on Saudi Aramco’s Abqaiq plant in Buqyaq and the Khurais oil field is the biggest disruption to Saudi Arabia’s oil industry since the early 1990’s. The pain consumers may feel center around how long it takes normal output from the world’s second-largest oil producer to return.
Tensions in the Middle East rose again over the weekend after reports indicated that four oil vessels were “attacked” or “sabotaged” at the mouth of the Persian Gulf near Fujairah Emirate, just outside of the Strait of Hormuz. The United Arab Amirates (UAE) stated that the damaged ships were two crude oil tankers owned by Saudi Arabian shipping firm Bahri, one fuel bunker barge flying a UAE flag and Norwegian oil products tanker owned by Thome Ship management. These reports are still largely unconfirmed, but come as no surprise given the recent rhetoric and geopolitical tensions facing the region.