Saudis back modest OPEC output cut, don't want to shock market

Saudis back modest OPEC output cut, don't want to shock market

Troy Powers
December 7, 2018

The long rally in oil prices lasted until October.

By how much oil production will be reduced is unclear, but de facto leader of OPEC Saudi Arabia, the world's largest oil producing country, reportedly wants to curb output by at least 1.3 million barrels per day, or 1.3 percent of global production.

Members of the Organization of the Petroleum Exporting Countries (OPEC), as well as the cartel's allies, are meeting at OPEC's headquarters in Vienna on Thursday. The market has been lower all day due to concern that planned production cuts from the Organization of the Petroleum Exporting Countries will be smaller than originally anticipated.

At a December 2016 meeting, OPEC members had agreed to a production cut to battle a supply glut that saw oil prices drop to $25 per barrel.

"Trump is making America great again", said Joe McMonigle, an oil analyst at Hedgeye Risk Management LLC and a former senior official at the U.S. Energy Department.

According to Ardabili, "the five or six countries which have benefited from the situation should slash their output by 1.4 million to 1.8 million barrels per day at the minimum in order to return prices to an upward trajectory".

The fall in the price of oil will be a help to many consumers as well as energy-hungry businesses, particularly at a time when global growth is slowing. However, Moscow has not yet specified how much it will cut production during the fresh round of supply caps that is now under consideration.

Led by Saudi Arabia, OPEC's crude oil production PRODN-TOTAL has risen by 4.1 per cent since mid-2018, to 33.31 million barrels per day (bpd).

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Nonetheless, Saudi Arabia is in a delicate position, in the wake of the murder of opposition journalist Jamal Khashoggi.

Oil ministers from 20 or so countries are in Vienna for two days of meetings - first, the 15 members of OPEC, then a wider group including countries outside the cartel.

Iran, OPEC's third-biggest producer, complained that it was the first time a U.S. president was trying to tell OPEC what to do.

Analysts estimate that if Russian Federation is willing to step up its production cuts, OPEC and non-OPEC countries could trim production by a combined 1.3 million to 1.4 million barrels a day.

"The oil cut will be between 1.0 and 1.3 million bpd". Delegates said details of how to share that out and the extent of the contribution from non-OPEC allies remained unresolved.

"If everybody is not willing to join and contribute equally, we will wait until they are", he said. "Given the recent ramp-up in supply from these producers, this represents a year-on-year decline in crude output of just 0.2 million barrels per day for 2019", Hittle said.

Similarly, Russia's crude oil production increased to 11.44 million barrels per day (mbd) during the third quarter ended September as compared to 10.95 mbd recorded in the corresponding quarter a year ago. Saudi Arabia, the largest producer in the cartel, is seeking to walk a fine line between preventing a surplus and appeasing President Donald Trump.