Saudi Arabia is reducing oil supply; OPEC may cut too

Saudi Arabia is reducing oil supply; OPEC may cut too

Oil prices had strengthened early in the session, after Saudi Arabia said the Organization of the Petroleum Exporting Countries and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day next year.

Khalid al-Falih, energy minister for the Saudis, justified his kingdom's inclination to cut back by pointing out at an Abu Dhabi oil summit on Monday, "If all things remain equal, and they nearly certainly will not as things will change - it is a dynamic market - then the technical analysis we saw yesterday ... tells us that there will need to be a reduction of supply from October levels approaching a million barrels".

Saudi Arabia, the world's largest oil exporter, said it will reduce its shipments in December by half a million barrels per day due to the seasonal decline in demand.

The latest price slump comes after the United States boosted production of shale oil, while Saudi Arabia, Russia and others raised supplies of crude amid signs of slowing demand.

EIA's November Short Term Energy Outlook's estimate of production from OPEC for 2018 and 2019 was revised up by 60,000 barrels per day to 39.1 million barrels per day and 40,000 barrels per day to 38.8 million barrels per day, respectively.

"[There is] stronger return to stability for Libya, and Nigeria [is] stabilising and as members of Opec we want them to supply and grow", said Mr Al Falih. The U.S.is among the nations expected to lead supply growth from outside of OPEC.

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The US criticised OPEC, which Saudi Arabia is the nominal leader of, after prices rose. "I think we would have to wait and see how the market is unfolding because our ultimate goal is market stability". US crude rose 60 cents to $60.79 a barrel, the first increase after the longest stretch of daily declines since 1984.

Through large production cuts starting at the beginning of 2017, they managed to push up oil prices from below US$30 a barrel to over US$85 a barrel in October, strongly improving their revenues. Russia, the world's second-biggest producer, said it would commit to any new agreement among producers to cut output.

U.S. West Texas Intermediate (WTI) crude oil futures were at $59.14 per barrel at 0530 GMT, down 79 cents, or 1.3 percent from their last settlement.

But even just signalling that producers could cut production by 1% can make a huge difference in energy markets and beyond. The uptick in supply and the U.S. granting of waivers to eight countries to keep importing Iranian oil despite U.S. sanctions re-imposition this month have contributed to the oil price fall.

Global oil prices tumbled into a bear market last week, down more than 20% from their recent peak.

WTI dropped 0.04 US dollar to settle at 63.1 dollars a barrel, while Brent was up 0.34 dollar to close at 73.17 dollars a barrel.

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