Analysis by Dr. Nancy Yamaguchi

 

West Texas Intermediate (WTI) crude oil prices continue to climb, recouping Friday’s and Monday’s losses and re-attaining the $47 per barrel (/b) level. The market was reassured by the announcement that Saudi Arabia would reduce crude exports next month.

 

The announcement was made after a meeting of the Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries and the key non-OPEC producers yesterday in St. Petersburg, Russia. The group is not planning any deeper cuts, reiterating that the market is already moving into better balance. Prices are strengthening mainly on the decision by Saudi Arabian Energy Minister, Khalid al-Falih, to cap Saudi crude oil exports at 6.6 million barrels per day (MMbpd) in August. Saudi Arabian crude exports are routinely above 7 MMbpd, and they averaged 7.46 MMbpd last year.

 

The focus on reducing exports should be more effective than merely reducing production, because producing countries are able to export oil from storage. Therefore, the volume of oil entering the market at any given time does not necessarily correspond with the level expected from a cut in production.

 

OPEC members Libya and Nigeria were not pressured to join in the cut agreement. However, Nigeria stated that it would voluntarily cap its production once output reached 1.8 MMbpd. OPEC reports that Nigerian crude production rose from 1,457 thousand barrels per day (kbpd) in March to 1,733 kbpd in June, an increase of 276 kbpd.

 

Libyan exports remain well below historic levels, and the country hopes to raise output to 1.25 MMbpd. The committee intends to monitor output, but to allow the country to increase output as it can. Libya’s crude exports averaged 254.7 kbpd in 2016, down from 962 kbpd in 2012.

 

WTI crude opened at $46.46/b this morning, up by 84 cents, or 1.84%, from yesterday’s opening value. Prices are $47.06/b currently, up by 60 cents so far this session.

 

Diesel opened this morning at $1.5187/gallon, up by 0.4 cents, or 0.26%, from yesterday’s opening. Diesel prices are $1.5341/gallon currently, up by 1.54 cents from today’s opening price.

 

Gasoline opened today at $1.5597/gallon, an increase of 0.22 cents, or 0.14%, from yesterday’s opening. Gasoline prices are $1.5643/gallon currently, up by 0.46 cents from today’s opening.