Thursday, 13 December, 2018

Oil Stocks to Gain from OPEC Production Cuts

Saudi energy minister lands in Baghdad to discuss reducing oil production Iraqi Oil Minister Thamer Ghadhban receives Saudi Energy Minister Khalid al Falih in Baghdad Nov. 10 2018
Nellie Chapman | 14 November, 2018, 03:13

Oil prices are staging a comeback, driving Brent crude oil above $70 following an announcement from the kingdom of Saudi Arabia indicating that the world's major crude producers plan to cut supply significantly in 2019.

"I think I was prodded by his excellency Khalid Al-Falih that probably there was a need for us to respond", he said.

President Donald Trump said he hoped there would be no oil output reductions, after Saudi Arabia said OPEC was considering cutting oil supply next year, citing softening demand.

UAE energy minister Suhail Al Mazrouei said other factors such as a stronger dollar and the risk of trade wars posed significant threats to the global oil markets as much as an impending supply glut.

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".

These figures suggest the main issue facing the USA energy sector is the lack of infrastructure - which is seen as a temporary obstacle before the ongoing rise in U.S. production and exports dampens global energy prices, while boosting oil prices in North Dakota itself.

West Texas Intermediate crude also dropped to a nine-month low, below $60 a barrel. 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.

A cut of that magnitude would reverse a decision in June by OPEC and Russian Federation to pump over a million barrels per day more to make up for the expected loss of Iranian exports. Since hitting four-year highs last month, crude prices have slumped on rising production, Chinese economic growth fears, and easing concerns about the impact of sanctions on Iran.

Saudi Energy Minister Khalid al-Falih said on Monday OPEC agreed there was a need to cut oil supply next year by around 1 million barrels per day (bpd) from October levels to prevent oversupply.

Front-month Brent crude futures, a benchmark for global oil prices, were at $71.59 per barrel at 0644 GMT, up by 2 per cent from their last close.

"A new strategy needs to be formed... whether it is a cut in production or something else, but it will not be an increase in production", he said. "While Saudi Arabia is cutting back output in December, the group may wait to see how Iranian supply and other variables play out before it is able to agree on collective action to prop up prices".

Several analysts said oil prices were likely to turn bullish again.

"The sanctions on Iran have turned out to be a damp squib for the time being with the Trump administration granting exemptions", said Devesh Mamtani, head of investments and advisory at Century Financial, a brokerage firm in Dubai.

Decision comes amid fears of oversupply.