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Ross McCracken

Ross McCracken

Ross is an energy analyst, writer and consultant who was previously the Managing Editor of Platts Energy Economist

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What Is Saudi Arabia’s Best Oil Strategy?

There appears to be little appetite amongst OPEC members and Russia for further production cuts, despite the gradual slide in oil prices. Russia is reported to have reduced output by slightly less than had been agreed upon by the OPEC plus producer group in August, while OPEC overall saw production up by 80,000 b/d to 29.61 million b/d, according to a Reuters poll published August 30.

Both Iraq and Nigeria boosted output – the former by 60,000 b/d and the latter by 80,000 b/d. The new head of the Nigerian National Petroleum Company, Mele Kyari, said at the end of August that Nigeria could increase output fairly easily next year to 2.5 million b/d, by bringing production stranded by pipeline damage back on-stream.

At the same time, production from Iran and Venezuela appears to have reached minimum levels, while Libyan output is being sustained at around the 1 million b/d mark, despite the ongoing civil war. This means that even if Saudi Arabia can get the OPEC plus group to agree to more stringent reductions, the burden of achieving those cuts will land hardest and squarest on Saudi shoulders.

Further costs

OPEC’s oil price support via production cuts has always been a double-edged sword. Higher oil prices stimulate non-OPEC oil activity, notably US shale oil, and the US oil patch appears to be struggling. Further OPEC reductions could throw it a lifeline.

The US oil rig count has trended downward since a peak in November last year…




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