How The G20 Summit Has Affected Oil Prices

The recent high-profile G20 summit in Hangzhou, China had resulted in a key development for the oil and gas industry – Russia and Saudi Arabia had signed an agreement to possibly cap their output of oil in the future.

According to CNN, the two countries were the top producers of oil globally in the first-quarter of 2016. Russia had pumped out 10.5 million barrels of oil per day while 10 million barrels of oil came from Saudi Arabia.

It was just back in June this year when Saudi Arabia’s oil output hit a record 10.6 million barrels per day. According to the Financial Times, one of Saudi Arabia’s motives is to prevent oil prices from hitting a level of US$60 per barrel, which would be sufficient for US oil producers to resume operations.

Meanwhile, Russia announced, also in June, that it planned to increase its oil output by 185,000 barrels per day by the end of this year. Some analysts even estimated that Russian output could hit 11.3 million barrels per day in 2017.

With the moves by Russia and Saudi Arabia, the price of oil has hovered around US$40 to US$50 per barrel since June 2016. Now that both countries have an agreement to potentially cap their production of oil, any dips in supply could have a positive effect on the price of the commodity.

The price of oil has fallen hard since hitting a level of over US$100 per barrel in the middle of 2014. Two companies – out of many in Singapore’s stock market – that have suffered from the effects of low oil prices are Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51).

In 2015, Keppel Corp saw its profit fall by 19%, largely due to weakness in its offshore & marine segment. As for Sembcorp Marine, the company has fared worse, as a profit of S$560 million in 2014 had become a loss of S$290 million in 2015. The first-half of 2016 saw the duo post year-on-year declines in both revenue and profit, again largely as a result of challenging conditions in the oil & gas industry.

In any case, it’s worth noting too that some analysts are highly doubtful that Russia and Saudi Arabia can actually cooperate in any meaningful manner on the matter of curbing their oil output, despite having inked the agreement mentioned earlier. It’d be interesting to see how this pans out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.