Oil gains after Saudi paves the way for an output cut

Virginia Carson
November 14, 2018

Trump and Russian Federation think the prospective cuts are a bad idea for the market.

Brent crude dropped below $70 a barrel on Friday for the first time since April but it was trading above $71 a barrel on Monday.

Bart Melek, head of global commodity strategy at TD Securities, observed, "That gave people pause that there may be strong lobbying about to occur from the White House trying to persuade OPEC [the Organization of the Petroleum Exporting Countries] not to act on it's proposal".

Other oil-market news Gasoline futures rose 1.5% to settle at US$1.6367 a gallon.

US crude oil imports averaged 7.5 million barrels per day in the week, up by 195,000 barrels per day from the previous week. This was announced by the Minister of energy of Saudi Arabia Khalid al-falih following the meeting of the Ministerial monitoring Committee of OPEC+. Those lower prices likely quieted Trump, but production cuts could again boost prices at the pump. "So far I don't see any necessity for this".

On Thursday, oil prices fell as the global market has remained bearish following October's downturn amid worries of potential supply glut from world's major oil producers.

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Khalid al-Falih's comments sparked a recovery in the price of global benchmark Brent crude, which rose to $70.83 a barrel and is on course for its biggest increase in a month. US crude rose 60 cents to $60.79 a barrel, the first increase after the longest stretch of daily declines since 1984.

A deal between the OPEC oil exporting nations, the biggest one being Saudi Arabia, and non-OPEC oil producers (known as OPEC+) was signed in December 2016.

RBC Capital Markets says the likelihood of an official production cut at OPEC's December 6 meeting has increased.

The move is likely created to stop the slide in crude prices which had recently fallen over 20% from early October, leaving them in a technical bear market.

U.S. President Donald Trump's latest tweet, "Hopefully, Saudi Arabia and OPEC will not be cutting oil production".

"OPEC is essential for the stability of oil markets", he said.

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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 USA penalties under sanctions on trading with Iran.

BP (BP) CEO Bob Dudley said the Saudi cut represented "quite a bit of oil".

US crude futures (CLc1) lost $2.64, or 4.3 percent, to hit $57.30 a barrel, lowest since December 2017, as of 12:18 a.m. EST (1718 GMT).

These swing producers can influence prices by artificially capping oil supply, but doing so is a risky game. 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.

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 United States production and exports dampens global energy prices, while boosting oil prices in North Dakota itself.

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