Decline in Saudi Production Raises Oil Prices to $74

Oil prices rose on Monday in international markets to $74 following an unexpected decline in oil production in Saudi Arabia and a reduced number of drilling rigs in the U.S.

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The price of a barrel of oil in London rose by 68 cents compared to the previous close, to $73.89. In the U.S. market, a barrel traded at a price 90 cents higher, at $69.39.

Saudi Arabia produced 10.29 million barrels per day in July, two sources from the Organization of the Petroleum Exporting Countries (OPEC) reported on Friday, about 200,000 barrels per day less than the previous month. Saudi production has thus decreased despite the June promise from Saudi and Russian producers to increase it from July.

The Saudis announced a “significant” increase in supply.

“Saudi Arabia knows that the U.S. really desires the maximum effect of sanctions on Iran, which means they want to prepare all buyers of Iranian crude oil and send them a message that ‘there is plenty of oil in the market and they should not be afraid to stop purchasing from Iran,'” believes Bjarne Schieldrop from SEB.

The goal is not to flood the market with oil and lower prices below $60 but to prepare the market and facilitate the transitional phase, claims Schieldrop. “Saudi Arabia does not want to lower prices to $50,” he emphasizes.

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Today’s price increase is also a reaction to the U.S. announcement of the reintroduction of sanctions on the major exporter Iran. The U.S. Department of the Treasury announced that sanctions would be imposed tomorrow late afternoon.

Most of Iran’s exports are directed to China and India, with about 20 percent going to Europe, whose refineries have already reduced their procurement of Iranian oil. Saudi Arabia, on the other hand, lowered the official selling price of oil for Asian buyers to the lowest level in four months last week.

Analysts at the American investment bank Jefferies state in a note to clients that the “sudden increase in Saudi and Russian production is obviously of a more limited scope” than initially expected.

Russia, the U.S., and Saudi Arabia produce between 10 million and 11 million barrels of oil per day and account for a third of global oil demand.

American energy companies, meanwhile, reduced the number of drilling rigs for the second time in the past three weeks, according to data from the specialized firm Baker Hughes, released last Friday. This data further supported the rise in oil prices at the beginning of the week.

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OPEC separately announced that the price of a barrel of its reference basket of oil on Friday was $72.07, which is 46 cents higher than the day before.