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Crude Oil Prices Stay Flat Despite Increased OPEC Oil Supply
September 3, 2018
A complex web of business and politics has managed to keep oil prices stable around the world for now.
As markets opened in Asia on September 3, both U.S. West Texas Intermediate (WTI) and International Brent crude oil futures stayed relatively stable. WTI was in fact flat at $69.81 per barrel, and Brent was down only 5 cents – to $77.59 per barrel – at the last settlements for each.
A highly-calculated move by the Organization of Petroleum Exporting Countries (OPEC) this summer increased production by 220,000 barrels per day (bpd). Several countries within the consortium had hoped for even more, but negotiations within several countries prevailed in keeping the rise to a minimum.
The United States, which is actively manipulating its own supply through easing constraints on fossil fuel production and related emissions standards, wanted to see prices kept higher. Other countries put pressure in the same direction as well. OPEC authorities held tight to how high the production rise could be, which appears to have paid off for its member states without affecting demand. It also probably satisfied the U.S. fossil fuel producers, who were concerned the increased supply would produce not just a glut but a low-priced glut in oil as well.
The current output for OPEC is now at a record level, with 32.79 million barrels being produced within the consortium per day. In parallel, despite considerable unrest, Libya was able to boost oil production slightly. Iraq also increased production, principally in its southern region.
While these increased production levels would suggest prices might have dropped further, the ‘futures’ nature of the oil pricing numbers noted above have stayed high for a number of reasons. A major cause is the presence of new trade sanctions now in place by the United States against Iran. According to commodity analysts, Iranian oil production has already fallen as buyers have shifted to other suppliers in the face of those sanctions. It has dropped so far by 150,000 barrels per month as of August, and may drop even further.
In Libya, the recent legislative vote against the proposed new UN-government plan has brought with it further fighting, injuries, and deaths between the governments which hold Tripoli as their capitol and the other group anchored in Tobruk. The anti-government forces have also begun to attack oil rigs. The effect is likely to depress oil production in Libya through September.
Increased demand for fuel as the northern hemisphere approaches winter will also likely provide some further upward pressure on pricing as well.
With both Libya and Iran production likely down, each for their own reasons, the U.S. unlikely to increase substantially outside of the OPEC umbrella in this period, and OPEC production staying at current levels, crude oil prices are likely to stay flat or slowly increase in the coming months.