Brent crude jumps to $71.59/barrel as Saudi Arabia announces supply cut

Saudi Energy Minister Khalid al-Falih said on Monday OPEC and its partners agree that technical analysis shows a need to cut oil supply next year by around 1 million bpd from October levels to avoid an unwelcome build-up of unused crude. He said the committee were reviewing the market and would draw up a plan to deal with the prospect of higher supply in 2019.

The fresh plunge comes as representatives from Opec and non-cartel members prepare to meet Sunday in Abu Dhabi to discuss a possible output cut to protect their revenues amid slumping prices. "Still, markets have gotten the message production cuts are likely if oil keeps falling".

Iraq and Saudi Arabia agreed on Saturday to work together to stabilise oil markets, Iraq's Oil Ministry spokesman Asim Jihad said, without giving further details.

Worldwide benchmark Brent crude oil futures were at 71.11 dollars per barrel at 0051 GMT, up by 93 cents, or 1.3 per cent from their last close. US West Texas Intermediate (WTI) crude futures rose 1.5 per cent to $61.08 per barrel.

"While the Saudis said it's too early to go ahead with discussions on production cuts, Russian Federation said supply exceeding demand is a seasonal factor, signaling it's not necessarily keen to cut output", Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp. said, predicting "many twists and turns" before OPEC's next meeting in December. The market should be balanced by the middle of next year, though there are forecasts for a surplus of 1 million to 1.4 million barrels a day, he said. "They seem to be sitting squarely on the fence about pulling the barrels back".

Since May, Opec production has risen 820,000 barrels a day, and Russia's output increased from 440,000 barrels a day in May to 11.4 million b/d in October. If Riyadh reduces daily exports by 500,000 barrels next month, it would effectively wipe out most of the production increases of the last six months.

In his speech at the start of the meeting, Falih said the recent sharp drop in prices had "surprised us". Turn about: Opec members and its 10 allies are mainly anxious about the increasing U.S. production (11.4 million barrels a day). "We're seeing some signs of this coming out of the U.S. We have not seen the signs globally, nor can we predict that they will persist into 2019".

Saudi Arabia, the world's largest oil exporter, said on Sunday it would cut its shipments by half a million barrels per day in December due to seasonal lower demand.

"In contrast, if oil prices fall it will benefit the currencies of major oil-importing emerging markets including the Indian rupee and Turkish lira".