Oil prices up after Saudis say they will cut exports by almost 1 million b/d in August
Oil prices erased early losses on Monday after Saudi Arabia’s energy minister said the kingdom will reduce its exports by almost 1 million barrels per day (b/d) in August to help tackle the global crude glut.
Khalid al-Falih said the Saudis would reduce their exports to to 6.6 million b/d next month.
Following the announcement, Brent crude futures rose by 46 cents on the day to $48.52 by 11:55 a.m. EDT and US WTI crude futures rose by 49 cents to $46.26/barrel.
“This is the Saudis saying they view the current market conditions as too weak and they are actually delivering,” SEB commodity strategist Bjarne Schieldrop told Reuters.
“It shows real additional willingness on their part to do something, which is hugely important, rather than sitting back and letting OPEC motions roll forward. They’re acting unilaterally and adding pressure.”
Falih also said OPEC and non-OPEC nations participating in the cartel’s supply cut pact would extend the agreement beyond March 2018 if necessary, but would demand non-compliant participants honour their pledges.
The United Arab Emirates and Iraq have so far shown weak adherence to their pledges. Falih said the poor compliance with the agreement along with an increase in OPEC exports has resulted in flagging oil prices.
“Some countries continue to lag which is a concern we must address head on,” Falih said. “Exports have now become the key matrix to financial markets and we need to find a way to reconcile credible exports data with production data.”
BNP Paribas commodity strategy head, Harry Tchilinguirian, said at the Reuters Global Oil Forum “Al-Falih is striking an optimistic tone today by also saying ‘it is only a matter of time before inventories return to five-year average’, the question for the market is how long?.”
“With patience already being tested, a slow rebalancing of the market is unlikely to invite strong buying interest and could lead to the early unraveling of potential summer price gains.”
OPEC looks to cap Nigerian production, increase pact compliance
Also on Monday, OPEC moved to cap Nigerian oil output and called on participants in the supply cut agreement to comply with production cuts to help reduce global crude stocks that have bogged down prices.
Nigeria and Libya had been exempt from the OPEC deal to help their oil industries recover from years of unrest.
An OPEC committee tasked with monitoring the agreement, known as the JMMC, announced it would track Nigeria’s production in the coming weeks. Once the African nation’s production stabilizes it will be capped, but no timeframe was given by the group.
Libyan output will likely remain uncapped as its production is unlikely to go beyond 1 million b/d any time soon. Libya’s capacity before unrest broke out in 2011 was between 1.4 million to 1.6 million b/d.
US weighs financial sanctions against Venezuela
Reuters reports the United States is considering financial sanctions against Venezuela to pressure President Nicolas Maduro to stop plans for a new congress that critics believe would turn the South American country into a dictatorship.
US sanctions would halt dollar payments for Venezuelan crude, according two Reuters sources; a senior White House official and an advisor with knowledge of the discussions.
The sanctions would prohibit any transaction in US currency by PDVSA and could severely impact the country’s crude exports and starve Venezuela of hard currency.
Reuters says the White House declined comment on the possible sanctions and PDVSA and the Venezuelan oil ministry did not immediately respond to requests for comment.
In the past, Maduro has decried what he calls the “imperialist meddling” by the US.
The Trump administration is also considering a ban on US oil imports from Venezuela, but no final decisions have been made, according to the official.
During the first four months of the year, the US imported 780,000 b/d of Venezuelan crude and refined products, according to the US Energy Information Administration.
A number of neighbouring countries are concerned that such US sanctions would trigger famine in already struggling Venezuela.
US refiners are also opposing the sanctions, saying they could impact the US Gulf Coast refining sector. Reuters reports Phillips 66 said the Trump administration should “carefully consider” sanctions that would affect US refiners, but not prevent the sale of Venezuelan crude to other countries.
Chet Thompson, chief executive of American Fuel & Petrochemical Manufacturers (AFPM), says some refineries get almost half of their supply from Venezuela.
“It’s not easily replaced,” he said, adding that the sanctions also may not have their intended effect.
Thompson added that Venezuela “will just sell it to someone else.”
