Abu Dhabi Summit: Oil Production Cuts May Be Necessary

The bulk of Iraq’s oil is exported via its southern terminals which account for more than 95% of state revenue

The bulk of Iraq’s oil is exported via its southern terminals which account for more than 95% of state revenue

Oil prices advanced Monday after Saudi Arabia announced plans to cut output in the face of global oversupplies and demanded that other producers followed suit.

A majority of OPEC and allied oil exporters support a cut in the global supply of crude, Oman Oil Minister Mohammed bin Hamad al-Rumhi said on Sunday. Abu Dhabi, home to most of the U.A.E.'s oil deposits, this month increased planned spending by 22 percent to exploit recent discoveries and raise capacity.

On Wednesday, oil prices decreased as US crude inventories recorded a seventh consecutive increase.

However, at the global level, it will be a new blow to consumers, who will have to pay more for gasoline, and will increase transport expenses of the companies.

Crude prices jumped by as much as 2% on the prospects of reduced supply from OPEC. The U.S. standard, West Texas intermediate crude, was $60.19, down 21 percent in the same period.

Insiders claim that the Saudis' push to reduce output is partly in reaction to being blindsided by Trump's decision to temporarily exempt China, India, and other countries from his sanctions against Iran, and that the kingdom views these exemptions (and not weakening demand or other factors) as a major reason for the current price slide - and is determined to stop it.

Oil prices, which rose above $85 a barrel in October, fell to less than $70 a barrel last week amid a supply glut.

Prices have since tanked, entering bear-market territory, helping prompt OPEC to consider production cuts.

Pentagon backs Saudi decision to refuel aircraft on its own
The US sees Saudi Arabia as a key ally, especially in terms of providing a counter to Iranian influence in the region. Almost 10,000 Yemenis have been killed in the conflict since 2015, according to the World Health Organization.

This has left OPEC scrambling to adjust its own output, which, at around 33.3 million bpd, accounts for roughly a third of global supply. Russia, the world's second-biggest producer, said it would commit to any new agreement among producers to cut output. To keep oil prices high, OPEC and its allies would have to keep reducing production further and further.

Concern about oversupply has pushed oil prices down by roughly 20 percent since early October. Turn about: Opec members and its 10 allies are mainly anxious about the increasing U.S. production (11.4 million barrels a day).

This time, Saudi Arabia is urging allies to focus on the risk of rising oil inventories and forecasts for massive growth in rival supplies next year including USA shale.

Oil's slide accelerated on Tuesday, with USA futures dropping to lows not seen in 11 months due to ongoing worries about weakening global demand, oversupply and sell offs across other asset classes, including equities.

This appeared to an abrupt turnabout from OPEC's September meeting, when some of the world's leading oil producers were talking about pumping extra oil onto the market in order to help soothe intensifying supply shock fears.

"One thing that is abundantly clear, OPEC is in for a shale shocker as USA 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.

"What is more important is the production of shale oil from America", Tun Dr Mahathir Mohamad told CNBC in an interview in Singapore yesterday.

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