Less than two months after Khalid al-Falih’s assurances that Saudi Arabia will produce and export enough oil to keep prices steady, the Kingdom’s Energy Minister has said that exports would be cut by as much as 500,000 bpd this month and next on a bid to prop up prices. At the same time, the Associated Press reports, discussions have started with Russia to curb the global supply of crude seeing as Iran sanctions failed to lift prices.
Al-Falih’s Russian counterpart, Alexander Novak, said Moscow wouldn’t mind cutting production as long as the move had the support of OPEC as a whole.
The swift change in rhetoric follows signs of weaker demand and growing supply, the classic combination that served a blow to bullish traders, with benchmarks slipping into a bear market inside a month. Yet following Al-Khalid’s announcement of export cuts, Brent crude added more than 1 percentage point from Friday’s close, as per a Reuters report that also noted that Saudi Arabia resorted to the move because of uncertainty that it would receive OPEC’s backing for a concerted supply cut effort.
Yet there is only so much Saudi Arabia and/or Russia can do alone or together: U.S. production was among the chief reasons for the latest oil price slump, with production hitting 11.6 million bpd in the week to November 2, up by 400,000 bpd from a week earlier and almost 2 million bpd from a year earlier, according to the latest weekly petroleum status report by the Energy Information Administration.
“One thing that is abundantly clear, OPEC is in for a shale shocker as U.S. crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year,” Oanda’s head of trading for the Asia Pacific, Stephen Innes, told Reuters.
By Irina Slav for Oilprice.com
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The Saudi and Russian decision to increase production also enhanced the small pocket of gut that still existed in the market and exerted a downwards pressure on oil prices. Saudi Arabia’s oil minister Khalid al-Falih announced today that Saudi Arabia will cut its production in December by 500,000 b/d but he shouldn’t expect any OPEC members to cut production since unlike Saudi Arabia they never raised oil production after the OPEC meeting in June this year.
Claims of weaker global oil demand are fake. The robust fundamentals of the global oil market are still the same as they were four weeks ago and are still projected to continue into 2019.
If there has been a slackening in oil prices recently it is not because of claims about rising US oil production. It is because the global oil market gave a sigh of relief having realized that Iran has not lost a single barrel from its oil exports as a result of the sanctions. The market has been bombarded before the sanctions went into force with projections that Iran could lose between 500,000 b/d to 1.5 millon barrels a day (mbd) of its exports. This has not materialized. Furthermore, the issuing of sanction waivers to eight countries who don’t need them in the first place and who would have continued to buy Iranian crude waivers or no waivers is the clearest admission by the United States that their zero option is out of reach and that sanctions are doomed to fail.
Claims by the EIA that US oil output hit 11.6 mbd in November are normally discounted by the global oil market along with utterances by the IEA. The EIA’s weekly figures are normally 700,000 b/d to 1 mbd higher than the monthly figures. So production figures could have been estimated at 10.6 -10.9 mbd if any. The EIA has always worked on the premise that by the time it published its monthly figures, the global oil market would have forgotten about its exaggerated claims in the weekly figures.
Furthermore, US domestic consumption is just over 20 mbd and its imports amount to 10 mbd meaning that US oil production could not be higher than 10 mbd.
Still, the impact of US oil production on the global oil market is very limited. Despite claims of rising production, only an estimated 2 mbd are exported mostly for blending with medium and heavy crudes and the US still imports 10 mbd.
Oil prices buoyed by robust fundamentals of the global oil market and unabated Chinese oil imports could end the year at $80-$85 a barrel.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
What it does mean is that hopefully it will prop up the price for WTI at $60 or low $60s which will keep the U.S. oil and gas boom, booming, and interest others in developing their shale resource, and it continues to give renewable energy a break to continue grabbing market share while working to bring that cost down to a level competitive with oil and gas.
The reality today is that there is plenty of oil and gas, and more possibility of renewables actually getting to the place where they can really compete and gain major market share. The fact is that today and the foreseeable future there's plenty of oil and gas to fuel the world, and keeping the price higher also spurs more production and the growth of renewables.
Let's hope that despite all that oil sloshing around oil can be propped up at the $60 plus range. I'm not a Global Warmist alarmist, but carbon does pollute and the fast we can move to non-polluting sources of energy the better, and higher prices help.
Again, the best option the oil industry has is to shift away from limited resources and towards renewables and their complementary technologies in effect reorganising into broader energy companies instead of resource extractors. These technologies need to be developed to the point of a complete replacement ASAP, there is no more time to waste.
The oil industry has the infrastructure experience and financial reserves to be of help here. Instead, they choose to place the whole of human civilization at risk by continuing to obstruct efforts to transition away from fossil fuels, spending the barest minimum on the transition and all for some relatively short term oil profit which in certain cases like for shale seems to be more or less non-existent either way.
Prices are downnnnnnn
Getting closer to $50