Oil prices rise after Saudi Arabia announces production cuts

Oil prices rise after Saudi Arabia announces production cuts

In its monthly report, OPEC said world oil demand next year would rise by 1.29 million barrels per day (bpd), 70,000 bpd less than predicted last month and the fourth consecutive forecast cut. WTI dropped 1 dollar to settle at 60.67 dollars a barrel, while Brent was down 1.42 dollars to close at 70.65 dollars a barrel.

Saudi Arabia expressed the need for oil producers to cut 1 million barrels a day from October levels and announced fewer shipments from next month, as OPEC and its allies began laying the groundwork to reduce oil supply in 2019, reversing an nearly year-long expansion.

Christopher Shiells, a London-based emerging-markets analyst at Informa Global Markets Ltd:"For those emerging markets that run large external imbalances and import oil, it is another reason to be wary especially as higher oil prices are not being driven by strong global growth".

Saudi Arabia's energy minister said earlier Monday that OPEC and its allies should reverse about half the increase in oil output they made earlier this year.

US President Donald Trump, however, did not like the rhetoric coming from his political ally in Saudi Arabia, and tweeted about it. That eased fears that new US sanctions on Iran would cause shortages and drive prices higher. Turn about: Opec members and its 10 allies are mainly anxious about the increasing USA production (11.4 million barrels a day).

"One thing that is abundantly clear, OPEC is in for a shale shocker as USA crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year", Stephen Innes of financial services company Oanda said.

One of OPEC's biggest problems right now is the surge in United States output, as small producers across the country increase production levels.

More news: Acting attorney general gets cool reception from Trump

Saudi Arabia is the largest oil exporter in the world and the de facto leader of OPEC, a powerful group of 15 countries that coordinate their oil production levels in an effort to control global prices.

"The US had contributed to volumes and there was an "inventory build-up" which needed adjustment", Mr Falih said.

For now, any action in December - as the production cuts should end - depends on price levels in December.

Crude oil prices had been climbing up last month amid expectations that the sanctions on Iranian oil from early November will result in short supply in the market.

Saudi Arabia pumped 10.7 million barrels per day (bpd) and Russian Federation produced 11.4 million bpd.

Brent crude oil prices soared to US$85 a barrel in early October in anticipation of U.S. sanctions being re-imposed on Iran. "It does appear at least on headline that the consensus is that the price of oil would benefit from less supply heading into 2019". "Oil markets are significantly oversold in our view, and we remain convinced that both Brent and [US benchmark] WTI will rebound from their current bearish market mode", said analysts at MUFG bank.

PRICE Futures Group's Phil Flynn and NovaPoint Capital's Joseph Sroka on the outlook for oil prices.

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