Oil prices resist sustained rise

Oil Prices

Oil prices rose 4% yesterday, following a show of solidarity with other oil-producing nations by Saudi Arabia’s Energy Minister, Khalid al-Falih. Brent crude hit a three-week high of $46.66 on Friday morning, as markets reacted to a statement by al-Falih indicating that an agreement to limit production may be reached at a meeting in Algeria in September.

But prices quickly began to slide, amid fears that the Saudi Minister’s words were no guarantee of action. At a meeting in April, Saudi Arabia refused to support a co-ordinated pledge to contain production that was endorsed by Russia, Iraq and Venezuela.

Venezuela, the world’s sixth largest oil producer, has long been arguing for limits to bring supply closer to demand and drive prices up. But Iran has been increasing output and exports in a bid to gain market share after years of international sanctions. Saudi Arabia has responded by stepping up its own production – to a record 10.67 million barrels a day in July – and supplying Asia with discounted fuel.  Kuwait entered the fray on Wednesday by introducing its own discount for Asian customers.

Meanwhile, the International Energy Agency predicted in its monthly oil report that the gap between demand and supply will shrink over the next four months. Growth in demand, particularly in the USA, the world’s biggest market, is falling as a result of over-purchasing at the start of the oil price fall in 2015 [1].

That could bring good news for suppliers of alternative fuels. But for now, observers are not expecting any great change before the International Energy Forum in Algeria on 26 September.

[1] International Energy Agency “Oil Market Report”