Oil Price Bounces Back As Russia Confirms Cut Back Plans

Dwayne Harmon
December 1, 2018

A seemingly relentless rise in USA crude supply, together with Saudi Arabia's insistence that it will not cut output on its own to stabilise the market, earlier sent Brent crude to another 2018 low below $58 a barrel.

Front-month Brent futures fell 75 cents, or 1.3 per cent, to $58.76 a barrel by 1:18 p.m. EST, ahead of expiry.

"The pressure has certainly been building as prices continued to fall amid ongoing concerns over excessive supply and lower demand growth".

"WTI oil is now trading right around the $50 per barrel level, a price last seen well over a year ago, as the current oversupply situation has now manifested itself in 10 consecutive weekly increases in US oil inventories", said William O'Loughlin, Investment Analyst at Australia's Rivkin Securities.

US West Texas Intermediate (WTI) crude futures were at 51.41, down 4 cents.

International Brent crude oil futures were at $59.65 per barrel at 0533 GMT, up 14 cents, or 0.2 percent, from their last close.

Saudi Energy Minister Khalid al-Falih said signals from Iraq, Nigeria and Libya were positive ahead of the group's December 6 talks because all ministers want to restore oil market stability. The three are Russian Federation, the United States, and Saudi Arabia and as their clout over oil markets increases with rising production rates, OPEC's is set to decline, at least temporarily.

Goldman Sachs and Credit Suisse, in separate reports, issued similar assessments that predict a Saudi cut, in coordination with other OPEC and non-OPEC members.

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Saudi Arabia will likely move to cut its oil output in order to prop up crude prices, against Donald Trump's demands to keep pumping so that prices stay low.

Surging oil production in the United States, Russia and by members of the Middle East-dominated OPEC has helped fill global inventories and create a glut in some markets.

A slowdown in oil demand growth is compounding the emerging glut.

The spectrum is huge, ranging from a potential 500,000 to as many as 2 million barrels per day (bpd) taken off the market, according to Ehsan Khoman, head of MENA research and strategy at the Dubai branch of Japanese bank MUFG.

A monthly Reuters survey indicates that output in November from the 12 OPEC members with supply reduction targets under a previous production agreement fell 110,000 barrels per day from October, while total OPEC output decreased by 160,000 bpd.

The price of crude oil went down sharply from 10 in the morning, down more than a dollar. The market sentiment has shifted from a 70 per cent expectation of a small production cut earlier this week to about a 56 per cent chance on Friday, CME Group said.

"Near-term oversupply has gutted Brent prices", USA investment bank Jefferies said in a note on Friday, adding that there was "an increasing urgency to move crude into storage".

"Given recent dramatic increases in crude output from OPEC, Russia and the USA, along with higher projected flows from Iran than previously expected, we anticipate that Saudi Arabia and OPEC+ will cut crude supply by 1 million bpd or more", the bank said in a note published Tuesday.

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