Oil prices have struggled to rise amidst an oversupplied market. With the prospect of an ever-increasingly energy independent U.S. coming closer to fruition, current energy products will have to cut output in order to keep prices at a suitably high level. Today the Organization of the Petroleum Exporting Countries (OPEC) announced that they had decreased crude output by just under 800,000 barrels a day in January.
According to The Wall Street Journal, the bulk of the production cuts came from Saudi Arabia, which saw a 350,000 barrel a day decline in output. The United Arab Emirates and Kuwait were next according to the report. Back in December, OPEC and 10 other producers let by Russia agreed to restrict oil production collectively by 1.2 million barrels a day for the first half of 2019. Russia had also agreed to cut 230,000 barrels a day in production over the same period, but currently is just down 90,000 barrels a day.
“Over the past two years, global oil demand has turned out to be higher than expected, supported by healthy economic activities, particularly in the OECD,” said the report. “With economic momentum expected to slow in the current year … this makes economic developments in the major consuming nations a key factor to monitor going forward.”
OPEC also said that it expected the world’s appetite for oil to grow by 1.24 million barrels, around a 1.3 percent increase in global annual demand, which is expected to reach 100 million barrels in 2019. Crude prices have since recovered roughly 20 percent from the annual lows of last December, bolstered primarily by the decision to cut supplies. Brent crude, the world’s oil benchmark, increased 3 percent to $63.32 a barrel after the report was released today.
“Energy commodity prices were mixed in January. There was a recovery in crude oil prices, in tandem with improving global financial market sentiment, particularly following a shift towards a more patient approach in regard to interest rate increases by the US Federal Reserve,” added the report. “In contrast, coal and natural gas generally declined as the weather outlook points towards a continuation of a milder winter, despite some cold January spells.”
At the same time, major countries within OPEC are eyeing international expansion for the first time. As reported by The Financial Times, Saudi Arabia’s energy minister Khalid al Falih went on to say that overseas expansion would become a critical part for the country. “We are no longer going to be inward-looking and focused only on monetizing the kingdom’s reserves,” he said, adding that “going forward the world is going to be Saudi Aramco’s playground.” While the country still remains the top oil-producing nation, it has stayed exclusively within it’s borders. Instead, the nationalized company now aims to become an international energy giant alongside companies like Royal Dutch Shell and British Petroleum.
The United States’ Energy Information Administration said on Tuesday that they intended for the country’s crude production to hit a new record in 2020 – around 13.2 million barrels per day. OPEC and other countries will either have to continue curbing extraction to maintain prices in the future or accept an energy independent U.S. and the likely oversupply of energy that would bring to the market.