Crude oil prices monday rose by over six per cent after the world’s oil consumer body, the International Energy Agency (IEA), said it expected United States shale production to fall this year and next, potentially easing a glut that has driven prices to their lowest in more than a decade.
Reuters reported that a bounce in global stock markets and the after-effects of a fall in the US oil rig count last week also supported prices.
But as the IEA’s forecast provided some glimmer of hope of a price recovery in the medium-term, it is the near-term that was of paramount importance to President Muhammadu Buhari when he departed for Saudi Arabia yesterday to meet with leaders of the kingdom in order to consolidate on the oil output freeze aimed at pushing up prices.
The world’s two largest oil producers, Saudi Arabia and Russia, agreed last week to keep oil output at January levels – the first cooperation among OPEC and Non-OPEC producers in 15 years – in order to boost prices.
The problem, however, is that the attempt to cap output could be scuttled by Iran, which has hurriedly increased output since US-led sanctions were lifted after it agreed to stop its nuclear programme.
Iran has “welcomed” the oil freeze, but made it abundantly clear that it would not cap output.
Its position also reflects the political tension in the Gulf between Sunni-led Saudi Arabia and its allies in the region, and Shia-led Iran.
Ideally, Buhari’s oil diplomacy in the region would have made more sense with a stopover in Iran, however, the military clash with the Iranian-backed Shiites in Zaria last December has put paid to the possibility of a détente with President Hassan Rouhani and the Ayatollahs of Iran.
Without Iran and even Iraq on their side, cash-strapped oil producers like Nigeria may have to wait a bit longer before oil prices reach levels sufficient to improve their finances.
However, US crude (WTI) futures rose above $31 a barrel, gaining $1.95, or 6.6 per cent, to $31.59 a barrel.
The March contract expires at the end of the session. US crude for April delivery traded at a higher volume and was at $33.46.
Also, international benchmark Brent was up $1.49 or 4.5 per cent at $34.50 a barrel.
IEA, the energy advisor to 26 industrialised countries, said in its medium-term outlook monday that US shale oil production was expected to fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017.
This fed into data released late last week that showed US drilling rig numbers had fallen to the lowest level since December 2009.
The IEA also said in its report the global oil market would begin rebalancing in 2017.
“Today’s oil market conditions do not suggest that prices can recover sharply in the immediate future,” the agency said.
In the US, record crude stocks of 504.1 million barrels were also weighing on markets, countering a proposed production freeze at January levels by Russia and OPEC.
Russia and OPEC both pumped oil at near-record volumes last month, with Russia reaching another post-Soviet high of 10.88 million bpd.
OPEC member Iraq said yesterday it planned to raise oil output levels to more than 7 million bpd over the next five years, and to export 6 million bpd of that. Oil production in Iraq hit a record high of 4.775 million bpd in January.