Khobar- OPEC’s production cut deal, meant to ease the glut holding up the oil market, went into effect as of the start of this year and the Kingdom of Saudi Arabia has shown nothing but commitment to the deal.
Saudi oil exports and production went down in rates even greater than those stipulated by the deal. In February Saudi Arabia increased production rates, but remained within the margin set up by the deal brokered among members of Organization of the Petroleum Exporting Countries (OPEC).
The Kingdom, which is chairing this year’s OPEC ministerial conference and is the de facto organization leader, needs to sustain rapidly decreasing production rates for a faster oil market recovery—the global Oil supply remains at levels much higher than what either Saudi Arabia or OPEC states desire.
OPEC has seen a 1.2 million barrels per day cut in production as of January 1, the first nearly a decade.
Russia, Oman, Kazakhstan, Mexico, Azerbaijan and five other non-OPEC producers have also complied with the OPEC deal in December, reducing production by half the rate of the OPEC states limit.
The cut deal aims to stabilize international oil markets after having suffered a major a slide in oil prices over the last two and a half year. Oil oversupply was a key factor in plummeting rates.
Saudi Arabia – OPEC’s largest oil producer – has shouldered the majority of the cut deal so far. The International Energy Agency (IEA) noted last week that OPEC’s high output cuts are overshadowed by the Saudi cut, which reached 135 percent with 486,000 less barrels per day.
OPEC and its allies may prolong production cuts after they expire in June if the world’s crude inventories remain excessive, Saudi Arabia’s Energy Minister Khalid Al-Falih said in a Bloomberg television interview in Washington last Thursday.
The curbs will be sustained if stockpiles are “still above the five-year average, if the markets are still not confident in the outlook, if we don’t see companies and investors feel good about the health of the global oil industry,” Falih said.
“We want to signal to them that we’re going to do what it takes to bring the industry back to a healthy situation,” he added.
If the kingdom seeks to drop oil supply before the end of June, it should cut exports and production more than its 10.058 million bpd which exceeds the rate demanded by the deal, and which Saudi Arabia already accomplished in January, further stabilizing prices.
In January, official data cite Saudi Arabia’s crude oil exports falling to 7.713 million bpd from an original 8.014 million bpd last December. Export data for February have not yet been released.