Saudi Arabia wants to produce more oil again

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Oil production

Brent is the most important oil for Europe. The WTI variety comes from the USA.

(Photo: dpa)

Frankfurt An alliance of crude oil producers led by Saudi Arabia is pushing Opec and its allies to increase oil production again from August. The Wall Street Journal (WSJ) reports, referring to members of the oil cartel.

Important members of the so-called Opec plus, which includes other producing countries such as Russia in addition to the organization of petroleum-exporting countries, want to meet next Wednesday via a web conference to discuss the current and future production of the group.

In April, after tough negotiations, Opec plus made a historic deal. The member states had committed to reducing their production by 9.7 million barrels (159 liters) per day – a cut that has never been seen in the history of the oil cartel. The deal was necessary because oil demand had plummeted in the corona crisis.

Now Saudi Arabia and most of the coalition participants appear to be in favor of easing. According to a Saudi proposal, two million barrels a day will then be extracted, the reduction agreed in April would then only be 7.7 million barrels per day.

“If OPEC maintains production restrictions to keep prices down, I think it’s suicidal,” said a person familiar with the Wall Street Journal, who is familiar with Saudis business games. Because then there will be a scramble for market share.

The optimism of the producers is related to the report of the International Energy Agency (IEA) last Friday. According to this report, the worst effects of the corona pandemic on global oil demand are over. However, the oil market should recover only slowly in the second half of this year.

Oil market prices showed spectacular movements this year. A futures contract for the US variety WTI briefly fell below the zero dollar mark in April. A barrel has cost around $ 40 since the end of June. The price of a contract for delivery in August has fallen by 36 percent since the beginning of the year, but has increased by more than 50 percent in the past three months.

The North Sea variety Brent has similar price fluctuations behind it, a barrel currently costs around $ 43.

In addition to the voluntary production restrictions of Opec plus, the unexpectedly sharp decline in US oil production also played an important role in the significant price recovery in the past three months. There have been massive cuts in investment budgets and bankruptcies among shale oil companies. Most recently, Chesapeake Energy, a well-known fracking company, filed for bankruptcy.

But the higher prices are also having an effect: According to a survey by the US Federal Reserve Dallas, half of the shale oil companies want to resume the previously shut down oil production at prices of $ 40. At $ 45, that number rises to 75 percent, at $ 50 even 94 percent.

The vast majority of those surveyed expect production to start by September at the latest. Since there is still a large inventory of drilled but not yet completed holes, it would not even require new oil holes.

For Commerzbank’s commodity analysts, the upside potential in oil prices has therefore also been exhausted. “We therefore see correction potential and a drop in Brent prices to $ 35 a barrel in the coming weeks,” says a recent study on the oil market. “By the end of the year, Brent should rise to $ 40 again.”

Click here for the Brent price page, here for the WTI course.

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