Published: Mon, November 12, 2018
Economy | By

Oil prices rise as Saudi announces supply cut

Oil prices rise as Saudi announces supply cut

Saudi Arabia's energy minister called Monday (Nov 12) for a global output cut of one million barrels per day to re-balance the market, as Riyadh unveiled plans to cut production by 500,000 bpd from December.

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. While its meeting with other producers on Sunday yielded no change in supply policy, OPEC+ warned in a statement that it might need "new strategies", raising the prospect of a wider and coordinated cut in 2019.

West Texas Intermediate crude also dropped to a nine-month low, below $60 a barrel.

The slide also comes during signs of a softer-than-expected impact from United States sanctions on Iran oil exports.

But he said the option of reducing production is possible, only if the market needs it.

Oil prices have shed a fifth of their value in just one month after surging to a four-year high in early October, driven by a combination of factors centred on higher supply and fears of sluggish demand.

The sources said any such deal would depend on factors including the level of Iranian exports after the United States imposed sanctions on Tehran but granted Iran's top oil buyers waivers to continue buying oil.

Since then, OPEC production has risen 820,000 bpd since May, according to the latest S&P Global Platts OPEC survey.

The oil producers could agree (though Russian Federation doesn't want to) to reduce the output to somewhere between the May and October figure (say a cut of up to 1 million) - cutting all the way to May level may attract the wrath of Donald Trump.

He insisted it was "premature to talk about a specific action", when asked about the possibility of an output cut. They worry that a continued fall in crude oil price will cause a 2014-16 style oil crash when oil price dropped 70%, in large part due to the U.S. shale oil boom.

"With the Iranian sanctions not being as severe as initially feared, officials from the OPEC and non-OPEC producers may discuss at the weekend the need to bring compliance back down... or risk another 2014-style slide in prices".

"In 2019 there will be a growth in supply so we're looking at a different strategy than the 100 per cent conformity in 2016", UAE energy minister and outgoing Opec president Suhail Mazrouei said, after the group's Joint Ministerial Monitoring Committee (JMMC) meeting in Abu Dhabi.

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

But producers eased output cuts in June after signs of a tighter market and higher prices, selling hundreds of thousands of extra barrels.

Commerzbank, Germany's second-largest lender, said on Friday that oil producers must act to prevent prices tumbling.

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