Saudi Aramco just announced it has lowered the price of its Arab Light crude by the most since October 2015, showing it does not intend to change its plans amid Iran’s strong revival.
Over this year, Iran has seen its production go up by 25% in an attempt to get back to pre-sanction levels, while Brent crude prices have shown a 17% rise mostly due to supply disruptions.
“We expect slightly higher oil prices for the second half of 2016 as oil market oversupply diminishes. However, inventories remain very large and will take some time to be drawn down,” World Bank’s Commodities Markets Outlook report lead author, John Baffes, said.
Oil Prices Cut by Saudi Despite Oversupply
Iran is trying to reach a daily output of 4 million barrels by the end of 2016, after a heavy drop caused by the international sanctions.
Just last month, Saudi Aramco CEO Amin Nasser told media sources the company was not worried about rival producers like Iraq, Iran and Russia gaining ground on Asia, its main export market.
Saudi Aramco CEO Amin Nasser
However, the recent move could be showing otherwise. In 2014, Saudi Arabia led OPEC’s decision to maintain production levels.
In the meantime, despite this year’s climb in Brent crude oil prices, these are still 20% lower than in 2015.
The rise follows a downfall in crude production in Nigeria, as militants resume pipeline attacks in the Niger Delta, as well as the Canadian wildfire that led the oil-sands industry to shut down more than 1 million barrels a day of production.
Oil Majors Suffer from Supply Glut
This oversupply and the continued drop in crude prices has severely affected the industry, which was left clear in the latest second quarter results announced over the past week.
In fact, ExxonMobil and Shell reported their lowest profits since 1999 and 2005, while Chevron reported its deepest fall in 27 years.
“Energy exporting emerging and developing economies have struggled to adjust to persistently low prices. (…) Both energy and agricultural commodity exporting countries need to step up economic diversification efforts to bolster resilience to commodity price fluctuations,” Director of the World Bank’s Development Prospects Group, Ayhan Kose, said.