Oil Stocks to Gain from OPEC Production Cuts

Oil Stocks to Gain from OPEC Production Cuts

Oil Stocks to Gain from OPEC Production Cuts

Saudi Arabia plans to reduce oil supply to world markets by 0.5 million barrels per day in December, Khalid al-Falih, its Minister of Energy, Industry and Mineral Resource said on Sunday.

Addressing an energy conference in the United Arab Emirates, Falih, head of the rotating presidency of OPEC, said Saudi Aramco would commit to a 500,000-bpd cut starting next month. Major oil producers said Sunday, Nov. 12, 2018, that crude supply next year would outstrip demand, calling for new strategies that might include cutting production.

Oil rose by more than 1 per cent on Monday, set for its largest one-day increase in a month after Saudi Arabia said OPEC and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day.

But cheaper crude oil means lower profit for oil producers, and thus countries such as Saudi Arabia are now mulling a cut in production - which would go against their earlier promise of increasing production.

Falih had stated that OPEC may need to cut output because oil markets may see an oversupply again next year.

"With the Iranian sanctions not being as severe as initially feared, officials from the OPEC and non-OPEC producers may discuss at the weekend the need to bring compliance back down. or risk another 2014-style slide in prices".

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Roughly two dozen oil exporting nations started capping production a year ago amid fears about a global glut of crude oil. The report also cited other prominent oil ministers in the cartel saying that many in the grouping agree that a production cut is needed at this point.

OPEC could reportedly make a uniform decision on cutting production when it meets in Vienna next month.

Both Brent Crude and West Texas Intermediate (WTI) saw gains of more than a dollar per barrel.

Mr Al Falih expressed concern, however, over the recent downward turn of the oil markets, which had through the summer held about $80 per barrel, only to fall to $69 on Friday, after the US Energy Information Administration reported higher US production figures and the White House granted waivers to eight of Iran's top oil buyers. "If that means trimming supply by a million [barrels per day], we will do it".

He said market sentiment had shifted from fears of shortages to worries about oversupply. This is necessary because OPEC members like Nigeria need crude prices to remain high for obvious reasons, one of which being the fact that there are budgets to be financed.

That would largely wipe out the 1m bpd increase the group agreed in June in a bid to rein in the price of oil.

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