Oil continues record slide despite Saudi talk of supply cuts

Anna Jefferson
November 14, 2018

Brent crude oil prices jumped by 2 percent on Monday after top exporter Saudi Arabia announced a supply cut in December, a measure likely aimed at halting a market slump that has seen crude decline by 20 percent since early October.

"The consensus among all members is that we need to do whatever it takes to balance the market", Al Falih said.

The oil producers have made a decision to act after oil dropped as much as 20 percent in one month, after hitting a four-year high in early October.

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.

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Crude oil dropped to a low of $30 a barrel in January 2016.

They agreed that output increases by producers other than Iran would lead to a glut next year.

Brent crude futures were up 70 cents at $70.88 a barrel by 11:05 a.m. EST (1605 GMT), following four sessions of losses.

Al-Falih's remarks were backed by Mohammed bin Hamad al-Rumhi, oil minister for Oman, who at the same conference claimed, "Many of us share this view". They say they are considering production cuts.

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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.

"In the short term this (Saudi output cut) is a positive for oil, but we must question the impact longer term unless it's the sign of more to come from OPEC", said Neil Wilson, chief market analyst at Markets.com.

The more Russia, Saudi Arabia, and their allies drive up prices now, the more profitable it will be for US producers to boost production.

"It is beginning to look alarming in the sense that the resurgence of non-OPEC supply - in particular shale oil from the United States - is putting a lot of pressure on this fragile equation", Barkindo said in Abu Dhabi. EIA estimated that USA crude oil production will average 10.9 million barrels per day in 2018 and 12.1 million barrels per day in 2019, an increase of 160,000 barrels per day and 300,000 barrels per day, respectively. Speaking in Abu Dhabi, he said that Saudi Arabia's announcement would now "probably firm the price". That hasn't helped oil majors Exxon Mobil (XOM) and Chevron (CVX)-they're down 0.5% and 0.9% respectively-while the SPDR S&P Oil & Gas Exploration & Production (XOP) and Energy Select Sector SPDR (XLE), the biggest oil-related exchange-traded funds, are off 1.6% and 1.1%, respectively. That "reflects the general risk associated with oil prices, and the stability of the market going forward".

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But the market has turned bearish in the past three weeks due to the United States issuing sanction waivers for eight countries importing Iranian crude, record American production and forecasts of slowing demand.

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