The prices of crude oil in the international market yesterday reached their highest levels in more than five weeks due to heightened speculation that the Organisation of Petroleum Exporting Countries (OPEC) would embark on output cuts to prop up prices.
According to Reuters, the global benchmark, Brent crude futures, yesterday hit a high of $48.81 per barrel, their highest since July 7, while the United States West Texas Intermediate crude reached $46.21 per barrel, its highest since July 15, before easing to $45.94 per barrel.
The renewed optimism followed an earlier remark credited to the Saudi Arabia’s Energy Minister, Khalid al-Falih, that Riyadh would work with OPEC and non-OPEC members to help stabilise oil markets.
But the cases of Nigeria and Libya could complicate the proposed OPEC deal as the two countries cannot cut output further, following the recent production cuts suffered by both countries on account of internal crisis.
Nigeria’s output hit its lowest in over 20 years this year due to attacks by Niger Delta militants, which curbed over 700,000 barrels per day while Libya is producing a fraction of the pre-conflict level, raising doubts over the possibility of further cuts in both countries.
However, al-Falih comments had raised investor expectations that the cartel could take actions to curb the oversupply in the market.
Much of the gains have been attributed to investors’ expectations that OPEC will take action to rein in ballooning oversupply.
“It was a piece of good news that the market latched onto,” Reuters quoted the Head of Commodity Market Strategy at BNP Paribas, Harry Tchilinguirian, as saying.
But analysts including Tchilinguirian, were doubtful of any such deal and Nigeria’s Minister of State for Petroleum, Ibe Kachikwu, shared similar doubts.
“Optimism on my part is quite sparse, but I believe engagement with the 70 per cent oil producers might have an impact,” Kachikwu was said to have written on his Twitter account.
Kachikwu had reportedly told CNN’s Richard Quest on Monday that he was not particularly optimistic about the possible talks on a production freeze by other oil producing countries to bolster prices, saying similar efforts a few months ago had failed.
The oil production losses in Nigeria, which has been beset by escalating militant attacks in the oil rich Niger Delta region this year, echoed lower output in Venezuela.
Kachikwu had also said Nigeria would have to increase oil output by an average of 900,000 barrels per day in order to recover crude oil that had been shut in to a series of militant attacks on oil and gas assets in the Niger Delta in recent months.
Venezuela is on track for its steepest annual oil output drop in 14 years as it struggles with an economic and political crisis and years of under investment and mismanagement.
In the United States, the Energy Information Administration (EIA) said it expected the country’s shale oil production to fall for a tenth consecutive month in September.