Oil hinges on Saudi dilemma: Bust budget or anger Trump?

Virginia Carson
December 1, 2018

Privately, some OPEC delegates are discussing the idea of engineering a production cut without explicitly calling it that, perhaps by saying that output will fall because customers are asking for fewer bbl.

Things will come to a head this weekend at the Group of 20 summit in Buenos Aires, a meeting that could shape the oil market in 2019 and affect everything from the war in Yemen to the share price of Exxon Mobil Vladimir Putin will also play a key role - Russian Federation and Saudi Arabia have spent the last two years working together to manage the oil market.

There are several reasons why oil prices have been in freefall over such a relatively short space of time, but they all relate to Saudi Arabia and Crown Prince Mohammad bin Salman's tentative alliance with United States president Donald Trump.

On Wednesday, Putin said Russian Federation was in touch with OPEC but Moscow would be satisfied with an oil price of $60 a barrel.

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The Organization of the Petroleum Exporting Countries (OPEC) will meet on December 6 in Vienna to discuss output policy with some non-OPEC producers, including Russian Federation. This indicates at a possible trench being created by the oil marketing companies to form a buffer in case the oil prices increase again.

The price of a barrel of WTI crude oil fell below $ 50, falling to the lowest level since September 2017.

"We are going to.do whatever is necessary, but only if we act together as a group of 25", Falih told reporters, referring to the Organization of the Petroleum Exporting Countries and its allies.

Falih was in Abuja to meet his Nigerian counterpart Emmanuel Ibe Kachikwu. "Everybody is longing (to) reach a decision that brings stability back to the market". In which case a significant cut of, say, 1 mb/d could lead to a rapid recovery in prices.

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"I'm surprised because stock markets rallied yesterday, because the dollar weakened and that should provide some sort of support for oil, but at the same time, I'm not surprised because the Saudi energy minister said yesterday they won't be the only one to cut (output) and even Putin has said he's happy with oil prices at $60". Traders are looking for supply cuts between 1 million and 1.4 million barrels per day (bpd).

"OPEC needs to cut if it wants the market to be a little less oversupplied in the first half of 2019", said Petromatrix analyst Olivier Jakob. Libya's current oil production is 1.266 million barrels a day, according to Bloomberg calculations based on data from people with knowledge of the situation.

But the U.S. also offered generous waivers to allies who imported Iranian crude and might have struggled to find other supplies quickly when USA sanctions kicked in on November 4.

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