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Saudi Arabia, Iraq to work for oil market stability

14 November, 2018, 06:34 | Author: Lawrence Cooper
  • The bulk of Iraq’s oil is exported via its southern terminals which account for more than 95% of state revenue

Saudi Arabia and Russian Federation are close, especially as a result of their pact in late 2016, along with other OPEC and non-OPEC producers, to curb output by 1.8 million barrels per day in order to prevent prices dropping too far - but oil markets have changed since then, largely as a result. This was announced by the Minister of energy of Saudi Arabia Khalid al-falih following the meeting of the Ministerial monitoring Committee of OPEC+.

"There are many countries that are suffering production declines, therefore we need to continue to invest", U.A.E. Energy Minister Suhail Al Mazrouei told reporters on Sunday in Abu Dhabi.

Oil prices have shed a fifth of their value in just one month after surging to a four-year high in early October, driven by a combination of factors centred on higher supply and fears of sluggish demand.

Saudi Arabia's 180 is good news for USA shale companies, especially high-debt frackers that are sensitive to price swings.

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.

Senate Minority Leader Chuck Schumer, a New York Democrat, had previously supported legislation that would remove an existing immunity shield that prevents the oil cartel and its members' national oil companies from being sued under US antitrust law.

Trump risks testing Saudi patience - or even provoking the kingdom's ire - at a particularly vulnerable moment, with the US decision to reimpose sanctions on Iran threatening to increase prices.

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Benchmark Brent crude, which had been trading above $80 a barrel recently, now hovers just over $70 after the US sanction waivers on Iran.

Through large production cuts starting at the beginning of 2017, they managed to push up oil prices from below US$30 a barrel to over US$85 a barrel in October, strongly improving their revenues. Talk out of the joint meeting of OPEC and non-OPEC producers on Sunday indicated possible production-cut talks from countries in and out of the cartel come December, which could catalyze another rally in oil.

One of OPEC's biggest problems is the surge in US output. US shale output is also on a tear and will help total American production grow by at least 1.3 million barrels by 2025, according to the Energy Information Administration. The market should be balanced by the middle of next year, though there are forecasts for a surplus of 1 million to 1.4 million barrels a day, he said.

According to Amrita Sen, the Chief oil analyst at London-based Energy Aspects Ltd., considering the fact that the sanctions imposed on Iran were much less stringent than expected, the Kingdom of Saudi Arabia is acting responsibly by taking the step to reduce the oil production that it had earlier massively increased in order to offset the expected drop in Iranian oil supplies.

"The balances for 2019 do show, especially in the first half of the year, that there will be significant global oversupply", Petromatrix analyst Olivier Jakob said.

"One thing that is abundantly clear, OPEC is in for a shale shocker as United States crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year", Innes said.

In fact, all three countries are pumping at or near record highs, with other OPEC members and exporting nations also turning on the taps.



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