Oil Climbs on Saudi Arabia Ministry Shuffle

Galtero Lara
Setiembre 12, 2019

Oil demand drops in the USA have not happened and talk of falling global demand looks to be more overstated than understated.

OPEC expects non-OPEC production to rise by almost 2 mbd this year and 2.25 mbd next year, largely due to gains in the United States.

"The market took that as a sign that the Trump administration may become less hawkish on Iran, open the talks and the possibility of the return of Iranian oil", said Phil Flynn, an analyst at Price Futures Group in Chicago.

Saudi Arabia's oil policy tends to cycle between protecting prices (sacrificing output) and defending market share (letting prices fall).

On Monday, in some of his first public comments since his weekend appointment, the prince said "cutting output will benefit all members of OPEC".

The American Petroleum Institute is reporting weekly oil inventory estimates today and if it is in its now habitual surprising mode it could push prices further up.

For India, the changes are even more keenly watched as the country gets more than 80 per cent of its oil imports from the Organisation of Petroleum Exporting Countries (OPEC) headed by Saudi Arabia, which is also the country's second biggest supplier of crude.

Oil prices slipped on Tuesday, offsetting narrow gains in the previous session, as sluggish demand forecasts countered expectations that major producers would prop up oil prices by limiting crude oil output.

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The Opec+ joint ministerial monitoring committee, known as JMMC, will meet on Thursday in Abu Dhabi on the sidelines of the energy conference.

Prince Abdulaziz also alluded to the sense that Saudi Arabia is shouldering the burden of production cuts, while other nations - notably Nigeria and Iraq - are flouting the limitations.

Prince Abdulaziz, half-brother to de facto ruler Crown Prince Mohammed bin Salman, is the first member of the royal family ever put in charge of the kingdom's all-important energy ministry.

"Worryingly, the focus of the government seems to have moved away from the profound structural changes to the company setting and labour market required to reform the Saudi economy and decrease its dependence on oil", Turvey stated.

Brent crude futures gained $1.05, or 1.7 per cent, to settle at $62.59 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose $1.33, or 2.4 per cent, to settle at $57.85 a barrel. He said the global economic outlook was expected to improve once a trade dispute between the United States and China was resolved. Rising non-OPEC manufacturing, significantly from the US, can be offsetting a part of the OPEC+ coalition's cuts, and a few analysts consider that deeper cuts could also be crucial. At that time, the U.S.

By contrast, global oil consumption has increased at an average annual rate of just 1.5% over the last 20 years ("World review of energy statistics", BP, 2019).

However, while oil markets have reacted positively to the potential of an extension of current OPEC cuts, the challenges for the oil market remains on the demand side amid the slowdown in the global economy stemming from US-China trade wars.

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