• Oil continues its gains by supporting Saudi Arabia's commitment to cut production and the dollar's decline


    Oil prices rose more than 1 percent yesterday to continue the gains that were gained in the previous session supported by the decline of the dollar and the Saudi statements that confirming the Kingdom's commitment to production cuts in 2018.

    According to "Reuters", West Texas Intermediate crude futures rose 84 cents (1.4 percent) from the latest $ 61.44, after rising 2.4 percent in the previous session.

    Brent crude futures rose 69 cents (1.1 percent) to reach $ 65.05 a barrel after a 2.6 percent gain on Wednesday. Traders said, "Prices rose with support from the dollar's slide against major currencies."

    More importantly, the market's support was expressed by Saudi Arabia (OPEC's biggest oil producer), which has confirmed its support for OPEC-led production cuts and independent producers (including Russia) since 2017 in an effort to narrow the gap between supply and demand in the market and boost prices.

    The US Energy Information Administration announced that crude inventories in the country rose 1.8 million barrels in the week ending Feb. 9, which is the third weekly increase in a row, but less than experts' expectations of a rise of 2.8 million barrels. As for production, the Administration announced a rise of 20 thousand barrels, in the fifth weekly increase, respectively, which brings the total production to 10.27 million barrels per day, the highest level of American production at all. The US production has jumped more than 20 percent since mid-2016.

    The Organization of Petroleum Exporting Countries (OPEC) said, "Although oil investments are expected to rise slightly this year, the overall investment situation is much lower than what we have seen in the past. As the market continues to focus on more short-term projects rather than long-term projects that are vital to future industry growth."

    A recent OPEC report stated -on the results of its participation in the eighth joint seminar with the International Energy Agency and the World Energy Forum in Riyadh - that the growth of new investments is vital to offset the rates of natural decline in the fields, which is about 5 percent per year. It noted that maintaining current levels of production requires the industry to add more than four million barrels per day every year.

    The report pointed to the Secretary General of OPEC's statement, Mohammed Barkindo, that investment and growth will be achieved only through the stability of the permanent market. He stressed, "That is why the ongoing efforts by the 24 participating countries in the 'Declaration of Cooperation' are a key to a better future for our industry." He noted that there was a direct link between long-term supply security and short-term conditions.

    The report pointed out that the efforts of "OPEC" continue to support international dialogue and cooperation. It emphasized the annual bilateral and multilateral energy dialogues with a wide range of stakeholders in the world including the European Union, Russia, China, India, the World Bank, the International Monetary Fund, the G20, and the international oil companies. As well as different productive meetings with various stakeholders in the United States were taking place.

    The OPEC report said, "These proactive efforts are our priority because the world today is increasingly complex and interdependent. Also, the position of the global oil market is interdependent where not a single party can bear the burden of industry alone." It pointed out that cooperation and dialogue has become more important than ever to reach success.

    The international report quoted Mohammed Barkindo's statement that confirmed that -looking to the future- it is possible to say that there is great potential to expand these cooperative efforts and establish them as longer-term cooperation platforms. He noted, "This would help us enrich our data collection and exchange of views."

    In the report, Barkindo stressed that open and transparent communication will help all parties to promote more sustainable stability in the global oil market, and will benefit all stakeholders in the industry.

    Robert Stehrer (Scientific Director of the Vienna International Institute for Economic Studies) talked with the "Economists" and said that the Saudi-Russian intensive meetings -most recently in Riyadh- confirmed the broad coordination between the two big producers. Especially that there is a great deal of congruence in the visions regarding dealing with the market during the coming period.

    Stehrer said that according to the announcement, there are new procedures to follow up stocks and accelerate the processing of the surplus. It is most likely will be finalized in the meeting of the Committee to monitor the reduction of production in Riyadh in April, also during the expanded meeting of producers in OPEC and outside in Vienna in June.

    Stehrer noted that OPEC and Russia are focused on the return of stocks to normal levels in the average of five years, which considered a key to restoring stability to the international oil market.

    In the Economists, Andrew Morris (director of Poyry Energy Consulting) emphasized, "Reviewing the data and mechanisms that depend on stock tracking is an important step to increase efficiency and the success of the cut production agreement. This requires coordination and special preparations between Saudi Arabia and Russia, which has already happened." He believes that the meeting to monitor production cuts in Riyadh in April will result in new efforts to raise the efficiency of production reduction.

    Morris added, "the cut of production has already raised the price of crude oil to the highest level in three years. However, there are a number of countermeasures, especially the surge in the US production, which requires a corresponding effort from producers inside and outside OPEC to increase the effectiveness of the joint agreement."

     Dr. Nagaganda Komundatova (the senior researcher at the International Institute for Energy Applications) emphasized to the Economists that the Saudi-Russian continuous communication enhances confidence between the two sides and sends a strong message to the market of the two countries' desire for long-term cooperation in all energy resources, especially fossil fuels. "This comes despite the fact that Russian energy companies are seeking to increase production capacity in preparation for a future stage that requires increased production to meet a large surge in demand for oil," she said. She mentioned that Russian Rosneft, for example, has been able to increase the proven reserves of oil by about 6 percent last year.​

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