OPEC, allies move closer to oil cuts as bear market adds urgency

Darnell Taylor
November 12, 2018

Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore, said OPEC was "focused on mitigating downside risks" after crude prices declined by around 20 per cent over a month following a supply surge, particularly from the top three producers the United States, Russia and Saudi Arabia.

Opec secretary-general Mohammed Barkindo said at the meeting that conformity on the earlier output increases, which had been in place since May, was at 104 per cent for the month of October.

U.S. West Texas Intermediate (WTI) crude oil futures were at 60.73 dollars per barrel, up by 54 cents, or 0.9 per cent from their last settlement.

Oil has been tumbling on heavy supply levels recently and so this announcement over the weekend that Saudi Arabia will limit supply by cutting 500K barrels per day from December has resulted in USA crude being bid. Energy ministers from Oman, Kuwait and Algeria were among others who attended the one-day meeting.

When asked about the possibility of an output cut, he insisted it was "premature to talk about a specific action".

Major oil producers meet in Abu Dhabi on Sunday to consider reverting to output cuts after a sharp slide in crude prices revived fears of a 2014-style crash.

Oil prices have shed a fifth of their value over the past month due to oversupply and signs of a softer-than-expected impact from USA sanctions on Iranian crude exports.

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Falih agreed in a meeting in Baghdad on Saturday on joint coordination with Iraq to achieve more stability in the oil market, Iraqi Oil Ministry spokesman Asim Jihad said.

Bob Dudley, the chief executive of United Kingdom oil giant BP, said: "We can see the volatility ..."

Decision comes amid fears of oversupply.

"Ideally, we don't like to cut", Al-Falih said. They worry that a continued fall in crude oil price will cause a 2014-16 style oil crash when oil price dropped 70%, in large part due to the USA shale oil boom. The producers need prices that are high enough to balance their budgets and low enough to stimulate demand and shield themselves from attacks from the White House, all while they contend with wild swings in supply as sanctions hit OPEC member Iran.

Opec and its allies outside the exporters' group, led by Russian Federation, met in the UAE capital to recalibrate their strategy of expanding production following a bearish turn of the markets last week.

But the producer nations eased the output cuts in June after signs of a tight market and higher prices, allowing hundreds of thousands of extra barrels into the market.

"If they fail to signal any intention to reverse the latest increase in production, oil prices threaten to slide further", the bank said in a note.

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