Oil jumped more than 2 per cent on Monday after Saudi Arabia opened the door to cutting crude production despite Russia saying that an excess of supply is short term, putting two of the world’s biggest producers at odds.
Khalid al Falih, the kingdom’s energy minister, said on Monday that market analysis conducted by producer nations showed that a one million barrel a day output cut may be necessary from October levels.
Demand
The comment followed remarks on Sunday by Mr Falih who said that state energy giant Saudi Aramco would supply 500,000 fewer barrels a day in December compared with November because of lower demand. A drop in exports could lead to a cut in production.
Saudi Arabia has targeted an increase in oil production of 1 million barrels per day (bpd) after pressure earlier this year from US President Donald Trump, who called on the Organisation of Petroleum Exporting Cointries (Opec) to help compensate for a loss of exports from Iran after the reimposition of US sanctions. But even as Saudi Arabia pledged to increase output, the Trump administration granted waivers to big customers of Iranian oil such as India and China, creating concerns about oversupply.
Brent crude, the international benchmark, was up 2.1 per cent at $71.63 (€63.13) in early trading in London. After hitting a four-year high of $86 a barrel in early October, Brent has tumbled 17 per cent and slipped below $70 on Friday.
Supply
The tumble over the past month came as Saudi Arabia signalled its concern over an excess of supply should the global economy slow further.
Oil analysts, as well as Iranian oil officials, have said that a minimum of 1 million bpd cut would be necessary to bring the market into balance. A Kuwaiti oil official said major exporters had “discussed a proposal for some kind of cut in [crude] supply next year”, state-run Kuwait News Agency KUNA reported on Monday, without specifying terms.
Saudi Arabia, the world’s largest oil exporter and Opec’s de facto leader, is grappling with a new drop in crude prices that could have an impact on its ambitious social and economic reform programme.
But Russia, the kingdom’s partner in efforts to balance the market, said on Sunday that it was not clear whether the market would be oversupplied next year, with any imbalance caused merely by seasonal factors.
Sources last week that the country’s oil producing companies aimed to boost production by 300,000 bpd.
Policy
Saudi Arabia and Russia have collaborated on oil policy since 2016, leading to joint efforts among global producers to cut supply that brought a multiyear oil downturn to an end. In June this year countries agreed to relax oil curbs to alleviate a price increase.
The official press release from producers who met on Sunday to monitor market fundamentals said that 2019 “[pointed ] to higher supply growth than global requirements”.
Representatives of oil exporting nations, who had gathered ahead of an official meeting of ministers in December, noted that “the damping of global economic growth prospects” could hit global oil demand next year.
– Copyright The Financial Times Limited 2018
