x Abu Dhabi, UAEThursday 27 July 2017

Saudis lift oil prices and cut exports as global stocks rise

Saudi Arabia has reduced its crude exports and increased prices after oil dropped in the face of rising inventories and a deteriorating economic outlook.

Saudi Arabia has reduced its crude exports and increased prices after oil dropped in the face of rising inventories and a deteriorating economic outlook.

The kingdom has started scaling back shipments this month, according to the research house JBC Energy.

At the same time, the kingdom has raised July prices for its main crude grade, Arab Light, for the first time in three months, said the Centre for Global Energy Studies.

"We think the Saudis have started to cut back already," said David Wech, the managing director at JBC Energy. "The economy is struggling, demand is relatively weak, stock builds have taken place in the US, China, and by the Saudis themselves."

Saudi Arabia has pumped at least 9.5 million barrels per day (bpd) since last June, the longest stretch of that level of production for 11 years, as it tried to rein in a crude price that had surged over fears that Iran's refusal to abandon its controversial nuclear programme would disrupt crude flows out of the Gulf.

The kingdom overtook Russia as the world's biggest producer of oil in March, pumping an average of 9.923 bpd, a 31-year high, according to data by the Joint Organisations Data Initiative.

A fourth round of sanctions levelled against Iran, which were designed to undermine the payment system for its crude and the insurance of its shipments, coupled with an impending European Union embargo on Iranian oil, reduced Iranian exports.

This, combined with the risk of a blockade of the Strait of Hormuz, the waterway that carries a fifth of global exports, caused Brent, the European benchmark, to spike above $125 a barrel in March.

Since then, however, concern over the euro zone, as well as weak economic data out of China and the United States, and the resumption of nuclear talks with Iran, have reversed the oil-price momentum.

In addition, global inventories are high from a prolonged period of production above demand requirements.

Saudi Arabia had been targeting an oil price of about US$100 a barrel, said Ali Al Naimi, the Saudi oil minister.

Last week, Brent fell below $100, prompted by further negative economic data. It has since recovered, hovering just above $100 a barrel in trading yesterday.

Demand for Saudi crude will drop to 9.5 million bpd in the second half of this year, about 500,000 barrels less than what the kingdom produced last month, according to JBC Energy.

fneuhof@thenational.ae

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