Published: Tue, November 13, 2018
Economy | By

Major oil producers foresee oversupply, edge closer to production cuts

Major oil producers foresee oversupply, edge closer to production cuts

In June, Saudi Arabia persuaded fellow oil producers to end 18 months of production cuts and pump more crude in response to falling output in Venezuela and Iran.

Oil prices climbed on Monday as the world's biggest supplier Saudi Arabia announced plans to cut production in the face of fears of oversupply.

"In the short term, this is a positive for oil, but we must question the impact over the longer term unless it's the sign of more to come from OPEC", said Market Analyst Neil Wilson.

The US administration has vowed to reduce Iranian oil exports to zero and US President Donald Trump has put pressure on Saudi Arabia to raise output to cool the market.

Major producers, including Russian Federation and Saudi Arabia, on Sunday warned that crude supply would outstrip demand next year at a joint OPEC non-OPEC ministerial monitoring committee meeting in Abu Dhabi.

A decision is expected only when the OPEC and non-OPEC ministers meet in Vienna on 5 December to assess the global energy market.

Ahead of the meeting, he acknowledged that so far there was no new deal to cut production among OPEC and non-OPEC producers, who struck an agreement in late 2016 to cut output by 1.8 million bpd to tackle an oversupply crisis.

This as global crude prices dropped by as much as 20 per cent since last month, easing the concerns of energy security and economic sustainability in countries that rely on oil imports - such as India, China, and Japan. Turn about: Opec members and its 10 allies are mainly anxious about the increasing U.S. production (11.4 million barrels a day).

Stephen Innes, head of Asia Pacific trading at Oanda, said: "The recent rebound in oil prices is a reminder that it will become increasingly hard for twin deficit currencies - rupee, rupiah and peso - to smooth currency volatility via rate hikes without hurting the economy, and through interventions without depleting reserves".

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

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

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", he said.

"I think it all comes down to Russian Federation", said Helima Croft, chief commodities strategist at RBC Capital Market LLC. Crude prices have dropped approximately one-fifth since early October.

Dudley said the waivers had been unexpected, so the market had been readjusting.

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

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