Published: Wed, December 19, 2018
Markets | By Jeffery Armstrong

Saudi plans lend credibility to OPEC's latest vague oil-cut pledge

Saudi plans lend credibility to OPEC's latest vague oil-cut pledge

USA crude oil dropped $2.04, or 4.1 percent, to a low of $47.84, its weakest since September 2017, before recovering to around $48.40 by 1115 GMT. For a second consecutive session, the markets are trading inside last Friday's wide range which tends to indicate trader indecision and impending volatility.

Oil prices have proved stubborn in the last couple of weeks, moving up and down by too little for the comfort of those who would like to see them higher in light of some strong tailwinds such as OPEC's agreement to cut production and a major field outage in Libya.

The American Petroleum Institute (API) said on Tuesday that US crude inventories dropped by 10.2 million barrels last week, more than analysts had forecast.

Prices rose almost one-percent earlier in the session, but the big wave of buying that could've triggered a breakout to the upside failed to materialize. -China trade tensions could undermine oil consumption next year, as growth in supply gathers pace. In the OPEC monthly oil market report released on Wednesday, Saudi Arabia reported production growth in November of 450,000 barrels a day. The decrease over the past two weeks follows 10 straight weeks of US crude inventory build.

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For the outlook of 2019, EIA expected Brent crude oil spot prices to average at 61 US dollars.

January natural gas NGF19, +0.46% climbed by 1.5% to $4.198 per million British thermal units, looking to recoup some of its losses from Wednesday, when it dropped 6.2% to settle at $4.136-the lowest since November 15, according to FactSet data. But that was by much less than the 2.8 million-barrel decline expected by analysts and traders surveyed by The Wall Street Journal. Analysts were expecting a build of 2.461 million barrels for the week.

But the cuts won't happen until next month and meanwhile production has been at or near record highs in the United States, Russia and Saudi Arabia, undermining spot prices.

Iranian output posted the biggest decline, of 380,000 bpd.

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OPEC has published less detail on how the cut will work than it did in 2016, when it first announced a supply-limiting deal with its allies. One energy expert said the production cuts would likely be "insufficient to mop up the inventories in the targeted three-month period till the end of the first quarter of 2019".

Brent crude oil was unchanged at $60.15 per barrel by 0945 GMT.

"The more OPEC+ tries to support prices by withholding oil from the market, the more they give the USA shale sector an out from rationing supply growth themselves", Citi said in a research note written by a team led by Ed Morse, the firm's global head of commodities.

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