Russian Federation has the final say on global crude output

Anna Jefferson
December 13, 2018

Oil prices went up about 5%.

Based on the OPEC+ announcement, Saudi Arabia will shoulder most of the cut that is 800,000 bpd while Russian Federation, which has been an important player in global oil markets, and other non-OPEC producers will bear the rest.

Although the United States awarded last-minute sanctions waivers to major importers of Iranian oil, Iran began under-reporting its official export levels in mid-September, in an effort to evade sanctions. However, with prices below $45/bbl in many onshore USA producing basins, a deceleration in US production growth should help achieve this ultimate goal. Benchmark New York crude was $2.11, or 4.1 percent, higher at $53.60 a barrel. First because apparently Russian Federation was expecting the Saudis to shoulder all the cuts alone in exchange for their support, and secondly Iran, whose crude exports have been depleted by US sanctions, objected to bear any cuts.

The Trump administration has supported that transition by opening new public land to drilling and loosening restrictions on public and private oil and gas production, with "energy independence" as a frequent talking point.

Al-Falih said the kingdom would downshift to about 10.2 million barrels a day in January, down 900,000 barrels a day from November.

We believe the production cuts are prudent and represent a "third way" to address market concerns that seeks to avoid some of the negative outcomes of recent moves.

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The price of crude has fallen nearly a third since October to around $60 a barrel as Saudi Arabia, Russia and the United Arab Emirates raised output to offset lower exports from Iran, OPEC's third-largest producer.

Iran reportedly demanded exemption from the cuts amid Saudi-backed United States sanctions, but Saudi Arabia was refusing to agree to the exemption.

Saudi Arabia and others had agreed back in June to pump more oil, partly to make up for lost Iranian supplies and prevent prices spiking to $100 a barrel.

"Having the next meeting in April will be important for planning purposes to speed the cycle up a bit", she said.

"Low prices are actually not good for the US economy, " Al-Falih said, a riposte to Trump's repeated calls for OPEC to open the taps.

The EIA reported that gasoline stockpiles climbed by 2.1 million barrels last week, while distillate stockpiles, which include heating oil, declined by 1.5 million barrels.

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The Minister of Petroleum, Industry and Mineral Resources of the Kingdom of Saudi Arabia, Khalid Al-Falih and his Nigerian counterpart, Ibe Kachikwu had last week in Abuja discussed the need to bring about a stabilisation in the crude oil price and in the worldwide crude oil market.

But some observers say an economic slowdown could reduce demand for crude oil next year.

Iraqi oil minister Thamir Abbas Al Ghadhban said he was still "hopeful" an agreement could be reached on Friday.

"Oil market fundamentals are turning more positive for the oil price".

"Even though we are a small oil producing country, Malaysia stands in solidarity with oil producing countries in pursuing the strategic objective of achieving global market stability in the interest of all oil producers and consumers, taking into consideration the prevailing market conditions and prospects", he said.

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