Published: Tue, November 13, 2018
Markets | By Jeffery Armstrong

Oil prices rise 1.5% after Saudi Arabia announces supply cut in December

Oil prices rise 1.5% after Saudi Arabia announces supply cut in December

Saudi Energy Minister Khalid al-Falih said on Monday global oil producers may have to reduce production by one million barrels per day - and his own country would take the lead.

Al-Falih said OPEC officials have seen analysis papers suggesting a production cut of upward of one million barrels of crude a day may be necessary to rebalance the market. In a series of tweets, Trump blamed a stock market sell-off on the Democratic victory while pressing the Saudis and OPEC to keep oil production at current levels.

Russia, another major producer, struck a more measured tone however, saying it preferred a wait-and-see approach. Meanwhile, Russian Energy Minister Alexander Novak said that he "would not want to focus purely on production cuts". "We hope that markets will calm down". Mr Khalid told CNBC the market had "got it wrong" in terms of fears about the impact United States sanctions on Iran would have - but his claims cut little ice with Mr Trump, who has previously urged oil-producing countries not to cut levels of production.

An official from group member Kuwait said on Monday major oil exporters had over the weekend "discussed a proposal for some kind of cut in (crude) supply next year", although the official did not provide any detail.

Saudi Arabia, the world's largest oil exporter, said on Sunday it would cut its shipments by half a million bpd in December due to seasonal lower demand.

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"Prices have been falling amid a continued rise in crude supplies from big producers, such as Saudi Arabia, Russia and the U.S., more than compensating for lost Iranian barrels", analyst Fawad Razaqzada told AFP.

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

Riyadh on Monday unveiled plans to trim its production by 500,000 bpd from Dec, calling for a global output cut of one million bpd.

The country faces uncertain prospects in its attempts to persuade other producers to agree to a coordinated output cut.

"We need not overreact" to falling prices, Mazrouei said, adding that crude was a dynamic market.

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Hopefully, Saudi Arabia and OPEC will not be cutting oil production.

Brent crude futures LCOc1 reversed course late in the session, settling down 6 cents at $70.12 a barrel.

Last week, higher USA energy stockpiles drove WTI crude to its longest losing streak in more than 30 years, while Brent dropped below $70 a barrel for the first time since April.

Bakken oil is now trading at a $20/bbl discount, shipping at as low as $13.50/bbl last week - compared to WTI benchmark in NY trading at $61.07/bbl.

Falih's comments followed a meeting in Abu Dhabi at the weekend, where major producers started laying the groundwork to cut supply in 2019, reversing an nearly year-long expansion.

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