An OPEC effort to balance the market, which includes support from producers like Russia, has added about $25 per barrel to oil, the Saudi oil minister said.
The Organization of Petroleum Exporting Countries is now in its second year of an effort to drain the surplus on the five-year average for global crude oil inventories with coordinated production cuts. The gap between global supply and demand since implementation last year is shrinking and holding oil prices near four-year highs.
Saudi Energy Minister Khalid al-Falih told Russian news agency Tass the deal set a floor under the price of oil and put more revenue in government coffers. By his read, at least $25 on the price of oil is a result of the deal.
“And most of that amount goes to the governments, not to the companies,” he was quoted as saying Friday.
The price for Brent crude oil on this date last year was $54.34 per barrel and it’s now trading near the $70 mark. Crude oil prices shot up more than 4 percent in the first few days of January, a rally supported by an extension of the OPEC agreement and geopolitical risk.
Falih earlier this week suggested the deal could be extended well beyond this year. If supported, it would come up against suggestions that, if prices rallied too high, members could start looking for an exit by the summer.
The surge in crude oil prices, now up more than 5 percent in January, or about $3.60 per barrel, comes as Saudi Aramco, the world’s largest oil company, is planning its initial public offering this year. Joe McMonigle, a senior energy analyst at Hedgeye Risk Management, said Saudi Arabia is now acting like “an activist investor” and working to keep oil prices elevated to get the best out of the IPO.
Saudi Arabia in December announced this year would have the largest ever annual budget with spending on pace to increase 5.6 percent year-on-year. The country’s central bank, meanwhile, said gross domestic product slipped 0.74 percent last year, compared with a growth rate of 4.1 percent two years before the implementation of the OPEC agreement.
By Daniel J. Graeber