Most countries around the world are experiencing a rise in oil prices from the first week of January.

This is due to expectations that the world’s top oil exporters will stick to their agreed output cuts and U.S oil inventories would have declined.

Furthermore Iran’s sanction was lifted in early 2015 and this has also contributed to the glut in oil supply and Iran is the fourth biggest oil reserve in the world and is an OPEC member.

In November, OPEC or the Organisation of the Petroleum Exporting Countries which accounts for a third of global oil supply met in November 2016 and have agreed to curtail production of oil from 1 January 2017 to 32.50 million barrels per day (bpd).

Non-OPEC countries also agreed to cut production by 558,000 bpd.

This glut came about when oil producing countries removed their production ceiling in 2014, exacerbating global crude oversupply and decreasing oil prices drastically for the past year.

A few oil producing countries have started curbing oil production and includes;

 Saudi Arabia (world’s top oil exporter and biggest OPEC producer) has reduced production by at least 486,000 bpd;

 Kuwait has followed suit with 2.707 million bpd from 2.9 million bpd in December of 2016;

 Abu Dhabi has also showed signs of cutting output to meet its OPEC reduction target and

 Russia’s output also fell to 11.114 million bpd, down 1.2 per cent from October.

While most oil producing countries are trying their best to increase the price of oil, Libya on the other hand is working to re-open more oil fields, including El-Feel, National Oil Corp., whilst Iran is producing more (Refer reuters news below) and this has put pressure on prices again.

According to Reuters, “Oil prices fell early on Monday (09/01/2017) as Iran increased exports undermining efforts by other oil producers to curb a global fuel supply overhang and as U.S. drillers increased activity for a 10th week.

Traders said that the lower prices were a result of rising exports from Iran that come just as other members of OPEC cut supplies in an effort to end a global glut.

Iran has sold more than 13 million barrels of oil held on tankers at sea, capitalising on an OPEC output cut deal from which it is exempted to regain market share and court new buyers, according to industry sources and data.

The amount of Iranian oil held at sea has dropped to 16.4 million barrels, from 29.6 million barrels at the beginning of October, according to Thomson Reuters Oil Flows data.

Before that sharp drop, the level had barely changed in 2016; it was 29.7 million barrels at the start of last year, the data showed.

Iran’s surging tanker exports weren’t the only indicator of plentiful supplies.

In the United States, U.S. energy companies last week added oil rigs for a tenth week in a row.

This extended the drilling recovery into an eighth month as crude prices remained at levels which many U.S. drillers can operate profitably.

Drillers added four oil rigs in the week to Jan. 6, bringing the total count up to 529, the most since December 2015, energy services firm Baker Hughes Inc BHI.N said on Friday (06/01/17).

As a result of the increased drilling for new production, U.S. oil output has risen by over 4 per cent since its 2016 low to almost 8.8 million bpd, although production remains 8.74 per cent below its 2015 peak.”

A stronger US Dollar will make barrels more expensive for holders of other currencies which includes our Fijian Dollars.

If there is a hike in oil prices, it will affect our inflation and the most common measure of inflation is the Consumer Price Index (CPI) which we use.

Fiji’s CPI basket consists of the following and their weights are shown concurrently;

The two subgroups mostly dependent on fuel are:

1.) Food which holds the most weighting at 35.36 per cent weighting and also

2.) Transport which holds 12.85 per cent.

Food is affected since productions are becoming more fuel reliant, oil needed for equipment and transport vehicles.

An increase in oil price, will increase the prices of food and transport causing a growth in inflation.

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This is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC Bank, Peter Fuata.