Saudi Arabia: Oil prices fall in August on intensifying recession fears; OPEC+ cuts quotas in September
September 5, 2022
The OPEC oil basket traded at USD 101.9 per barrel on average in August, down 6.1% from the prior month. Meanwhile, the price was 19.5% higher on a year-to-date basis and was 44.9% higher than on the same day last year.
Crude oil prices fell in August on intensifying fears of a global recession amid rising inflation and interest rates. PMIs for the Euro area, Japan and the United States were all in contractionary territory in August, and activity in China was likely muted as well due to a surge in Covid-19 cases and a heatwave.
According to an unofficial estimate by Reuters, combined crude oil output among OPEC members rose to 29.6 million barrels per day (mbpd) in August from 28.9 mbpd in July. This mostly reflected higher output in Libya. Falling output in Angola and Venezuela dragged on the print. Official OPEC data for August will be released on 13 September.
Meanwhile, on 5 September, OPEC+ agreed to cut production quotas by 0.1 mbpd starting from next month. The cut is unlikely to halt the upward ascent of Saudi oil production: Equal to just 86 seconds of global crude demand, the quota cut will simply undo the same-sized quota hike implemented in August. With Saudi output was already 0.15 mbpd below quota in August, the key determinant of Saudi production ahead will be its production capacity, not its production quota. The OPEC+ move was largely to send a signal to the market that it is prepared to intervene should crude prices continue their recent fall.