Oil shock: Saudi minister wants supply cut of 1m bpd

Galtero Lara
Noviembre 13, 2018

Russia's Novak said it's "hard to say" if oil markets will be over-supplied next year.

But cheaper crude oil means lower profit for oil producers, and thus countries such as Saudi Arabia are now mulling a cut in production - which would go against their earlier promise of increasing production.

President Donald Trump criticized Saudi Arabia's announced plan to cut oil production on Monday, as tensions rose between the US and its long-time Middle East ally.

Saudi Arabia's energy minister said earlier Monday that OPEC and its allies should reverse about half the increase in oil output they made earlier this year. oil futures in NY had gained as much as 2.4 percent in London and 1.8 percent in NY after the Saudi announcement.

The JMMC, a technical committee, is expected to make important recommendations on production cuts to a key ministerial meeting in Vienna next month for the OPEC and non-OPEC producers.

Global oil producers - including OPEC and Russian Federation - pump out roughly 100 million barrels of oil per day, so a 1% cut in production might not seem like a big deal.

The world›s top oil exporter has been pumping 10.7 million bpd since October, according to Falih. Turn about: Opec members and its 10 allies are mainly anxious about the increasing USA production (11.4 million barrels a day).

Barron's Al Root noted that changes in output from the particular world region can have an outsized impact on commodity prices due to the major difference in what it costs to produce oil in the kingdom versus other places in the world. 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.

Falih said they would then decide whether to adjust production and by how much.

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This time, Saudi Arabia is urging allies to focus on the risk of rising oil inventories and forecasts for massive growth in rival supplies next year including USA shale.

When asked about the possibility of an output cut, he insisted it was "premature to talk about a specific action".

"We have to study all the factors", Falih said.

He said market sentiment had shifted from fears of shortages to worries about oversupply.

He also attributed the sharp drop in prices to "microeconomic uncertainties" and signs of a build-up in crude inventories.

The UAE's Mazrouei said the goal of OPEC and non-OPEC cooperation was to strike a balance in the market.

But at the same time, OPEC members need prices that are low enough to stimulate demand from buyers.

The market had anticipated that exports from OPEC member Iran would fall precipitously following the institution of US sanctions in November.

Commerzbank, Germany's second-largest lender, said Friday oil producers must act to prevent a free fall of prices.

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