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Crude Oil Prices Fall Despite Saudi Arabia Cutback in Production

  • August 8, 2017
  • By Pete Nisbet
  • 0

Crude oil prices fell Tuesday even though Saudi Arabia’s state controlled producer, Aramco, announced a production cut. The Saudi oil company announced Tuesday that it was cutting crude allocations by 520,000 barrels per day in September. This was stated to be a minimum level of cut and would apply to all customers.

 

In spite of this news, crude oil prices continued to fall. This was largely due to an increase in oil exports by other OPEC countries. One of these is Libya which, along with Nigeria, is exempt from OPEC crude oil production limits due to unrest in the respective countries leading to attacks on the oil fields. Sharara has suffered several disruptions since Muammar Gadaffi was overthrown in 2011.

Crude Oil Prices

Sharara Oilfield in Libya Shut Monday

The Sharara field was shut down Monday due to armed protesters taking over a control room in the port of Zawiya. This is the regular destination for crude oil from the Sharara oil field, so production had nowhere to go. Production had to be closed until the protest had been contained.

 

As an indication of the effect of the overall issue in Libya, the country was producing 1.6 million barrels of oil equivalents a day (1.6 MMBOEPD) prior to 2011. This time last year, Libya was producing around 200 thousand barrels a day (200 MBOPD), or 12.5% of the pre-2011 level. In July, the Sharara field alone was producing 275 MBOPD.

Oil Prices Low for Three Years

The production restriction applied by OPEC was applied in an attempt to keep oil prices up by creating an artificial scarcity. Prices had been low for three years due to a worldwide glut of crude. This has not been successful because oil prices are still about half what they were up to 2014, before production increased worldwide.

 

One reason for this, though not necessarily the only reason, is the refusal of the US to cut production and its increasing development of shale oil.

Crude Oil Prices Remain Low

Crude oil prices continue to remain low because of a lack of commitment to reduce production. Benchmark Brent crude dropped 40c a barrel to $51.97 at 1330 GMT, while US light crude dropped by the same amount to $48.99 a barrel. Production continues to grow in Libya, Nigeria and the US.

 

It appears as though the OPEC strategy is failing to maintain crude oil prices. There was a meeting in Abu Dhabi Tuesday to discuss the way forward, and how OPEC can force compliance with the need to reduce oil production to 1.8 million barrels a day. Oil gluts help nobody and tend to lead to reduces exploration for alternative energy sources. Why seek alternatives when oil’s so cheap!

 

About Pete Nisbet

Pete has been working in the field of website design and content for many years. He has a great interest in technology and current affairs, particularly business affairs. Pete's interests are technology, writing and world affairs and he is widely traveled. Pete also holds an Honors BSc from the University of Edinburgh.