Will oil price shoot up again?

Daniel Fowler
November 14, 2018

Saudi Arabia has said it will trim oil exports by 500,000 barrels per day (bpd) in December, as major producers met to consider cuts to shore up declining prices.

"We want to enter 2019 with a minimum amount of stocks", Falih said.

"Saudi Arabia has stepped in front of the oil market bears, proactively announcing they will reduce exports", said Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore.

Russian Federation stated on Sunday that it did not believe that the oil market would face a probability of an oversupply next year.

Saudi Energy Minister Khalid al-Falih said OPEC and its allies agree that technical analysis shows a need to cut oil supply next year by around 1 million bpd from October levels.

The bank added that it expected US crude production which is already at a record 11.6 million barrels per day (bpd), to break through 12 million bpd in 2019, making the United States "energy independent".

Note that although the Iranian sanctions have taken effect, the American Government has now given waivers to eight of the country's customers, thereby going against its earlier insistence on cutting off all of Iran's oil from the global oil market.

Global benchmark Brent crude oil futures were at $69.39 per barrel, down 73 cents, or 1 percent, from their last close. You see, we're a small producer of oil, 600 barrels a day - nothing compared to countries like Saudi, which is entirely dependent upon oil revenue.

Any formal decision on production cuts by Opec would likely come at its next meeting, in Vienna on 6 December.

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The United States last week said eight jurisdictions - China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey - would be able to continue buying Iranian oil for six months without fear of U.S. penalties under sanctions on trading with Iran.

"One thing that is abundantly clear, OPEC is in for a shale shocker as US crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year", Oanda's head of trading for the Asia Pacific, Stephen Innes, told Reuters.

The crash deeply impacted oil producers, with Saudi Arabia's fiscal deficit rising to 16% of its GDP - meaning lesser money for infrastructure, defence, and its social projects such as free medicine for citizens and so on.

Crude prices jumped by as much as 2% on the prospects of reduced supply from OPEC.

Even as the Saudis floated the possibility of a cut in production, the selling has not abated. In June, it persuaded fellow producers to end 18 months of production cuts and pump more crude in response to falling output in Venezuela and Iran and pressure over prices from U.S. President Donald Trump. "We need to wait some time, to see how the market develops", he told reporters.

While market analysts worry over a suddenly bearish market, Mr Al Falih cautioned against being driven too keenly by sentiment over fundamentals and that the group must support members facing critical challenges due to sanctions and other disruptions.

After jumping over 1% in early trade, front-month Brent and WTI Crude futures are now trading at $70.70 and $60.63 a barrel, up 0.75% from Friday's closing level.

The caution of some other members of the group over whether respond swiftly to the recent price collapse arises partly from the unpredictability of Iranian supply amid USA sanctions.

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