Saudi makes case for 1.0m b/d cut in crude oil output
US DoE has continued to raise 2018, 2019 output forecasts higher
OPEC cut expected, Russia yet to decide best course of action
Updated : 20:47
Riyadh and its allies should cut their combined output of crude oil in order to balance the market, Saudi Arabia believes, but it remains to be seen if other producers will participate in any reductions.
Speaking at an industry event in Abu Dhabi on Monday, Saudi energy minister, Khalid Al-Falih, said that producer countries would do "everything we can" to keep stockpiles and supply/demand fundamentals close to balanced levels and that they believed that "markets would calm down".
Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!
— Donald J. Trump (@realDonaldTrump) November 12, 2018
More specifically, Saudi, the largest oil producer within the Organisation of Petroleum Exporting Countries, said producers should reduce their combined output by approximately 1.0m barrels a day compared to October's levels.
That compared to a forecast from analysts at Morgan Stanley, on 5 November, for Saudi, Kuwait and the United Arab Emirates to trim their combined output by between 0.2-0.3m b/d in order to balance the market.
Already on Sunday, and in what amounted to the Kingdom's second 'about face' since summer, Al-Falih appeared to signal that his country was preparing to reduce its shipments of oil by around half that amount, or roughly 0.5m b/d, starting from December, alleging that the amount of so-called 'nominations' for December that refining clients had been asking for were 500,000 barrels less than those for November.
Most recently, prices had come under selling pressure after Washington surprised many in the industry by granting waivers to eight countries from US sanctions on importing oil from Tehran, including China and India, Iran's two biggest clients.
In part at the behest of America, Saudi and other producers, such as Russia, had ramped-up their own production in anticipation of those sanctions coming into effect and in order to offset their impact on global supplies, as well as the negative effects from successive production shortfalls in Venezuela, contributing to a steady slide in crude prices throughout October.
Between May and October, the cartel and the Russian Federation had boosted supplies by nearly 2.0m b/d, according to estimates from Bloomberg. Production from the likes of Libya had also surprised to the upside.
US output continues to exceed forecasts
Meanwhile, US shale oil output had continued to climb.
Indeed, in its Short-Term Energy Outlook published on 6 November, the Energy Information Administration, the US Department of Energy's statistical arm, forecast that US crude oil output would average 10.9m b/d in 2018, versus just 9.4m b/d in 2017, and contine growing to reach 12.1m b/d in 2019.
According to the DoE, during the month of October, US oil output had run at an average pace of 11.4m b/d, dipping slightly versus the previous month as the US Gulf coast was battered by hurricanes.
In remarks made at the same industry event, on Monday, OPEC Secretary General, Mohammad Barkindo, said: "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."
For his part, Russian Energy Minister, Alexander Novak, was reportedly cool on the idea of an immediate output cut preferring instead to wait and see how the market evolved before taking a decision.
On that note, Craig Erlam, senior market analyst at Oanda, said: "There is clearly appetite for action in Saudi Arabia which has committed to cutting output by half a million barrels next month but that isn’t yet shared by Russia, the other prominent member of the OPEC+ group.
"With the US, Russia and Saudi Arabia currently pumping at or near record levels and the Iranian sanctions not restricting output nearly as much as expected, due to the eight American waivers that were granted, traders may well see scope for further downside ahead of the meeting. To add to the bearish case, the outcome of the meeting is not as inevitable as some have been in the past."
As of 1432 GMT, front-month Brent crude oil futures were higher by 0.848% at $70.78 a barrel on the ICE, but off an intra-day high of $71.88.
From a technical standpoint, WebFG's chief technical analyst, Jose Maria Rodriguez, pointed out that the RSI for Brent had reached 'oversold' levels on daily price charts.
However, on the monthly price charts, there was a slight 'bearish' divergence between the RSI and the price of Brent, which might be hinting at additional softness in prices further down the line, although intermediate bounces or rallies were possible.