OPEC looks to cut oil production to bolster falling price

Randal Sanchez
December 7, 2018

Iran has said it is carefully monitoring the next steps by some OPEC members and their allies which have "arbitrarily" ramped up oil production, leading to a crash in prices.

The price of crude has fallen nearly a third since October but Trump has demanded OPEC make oil even cheaper by refraining from output cuts. "The World does not want to see, or need, higher oil prices!" said Trump, who has repeatedly accused the cartel of keeping prices artificially high.

He was replying to a question on US President's expectations from OPEC meeting.

Hopefully OPEC will be keeping oil flows as is, not restricted.

OPEC heavyweight Saudi Arabia has indicated it is willing to cut production, despite U.S. President Donald Trump's pressure against a cut.

"And the fact that President Trump tweets about it and reminds us, I think, is a healthy thing and we take it as one input factor but at the end of the day our most important guiding principle is to bring supply and demand into balance and we don't think the United States will benefit from an over-supply market for an extended period of time where investment flows stop and the fantastic growth in U.S. shale is brought to a halt in the way it happened in 2015-2016", he said.

Negotiations between OPEC members are fraught, however, as some feel that Saudi Arabia wields too much clout in setting policy. Some have raised concerns that Trump's decision to not sanction Saudi Arabia over the killing of a dissident journalist might sway the kingdom.

Although Russia, the largest producer in the OPEC+ group, had agreed to a cut in principle, the eventual size of their contribution remains undefined through this week's talks in Vienna.

USA crude oil stockpiles fell last week due to a surge in exports, as the country became a net exporter of crude oil and products for the first time, underscoring the nation's growing prowess as a global supplier of oil and refined products.

Saudi Oil Minister said that PM Modi in a private meeting had pitched for cheaper fuel prices which strongly shows that he does care about the Indian consumers.

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Although the market believes that wellhead economics offer attractive returns in many areas of the USA shale patch even at $50 WTI Crude, the financial markets are not yet convinced that "a typical shale oil E&P is able to grow in a self-sourced manner", Rystad Energy said in an analysis last week.

This led to Thursday's talks in Vienna concluding without a press conference.

Some experts say that gives the USA some leverage over the Saudis, though Al-Falih denied that on Thursday. Achieving that balance was proving elusive, with one delegate predicting that the size of output cuts would remain unresolved until Friday, when allies including Russian Federation join the talks.

That would be a more bullish outcome than Al-Falih had hinted at early in the day, when he said a reduction of about 1 million barrels a day from the entire OPEC+ coalition should be adequate and "certainly we don't want to shock the market".

"We don't need permission from anyone to cut", Saudi minister Al-Falih said. He said an output cut of 1 million bpd could be sufficient, contradicting his previous assessment of 1.3 million bpd. The alliance has transformed OPEC into a duopoly in which Russian Federation, which isn't a formal member of the cartel but part of the production-cuts alliance, is asserting its power.

"The risk of OPEC+ not being able to agree on a deal was always very high and this will now pressurize prices significantly lower", said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. The OPEC-Russia alliance was made necessary in 2016 to compete with the vastly increased production of oil by the United States in recent years.

More than 75 percent of dedicated USA shale firms continue to report capital expenditure exceeding their cash flow from operating activities, the consultancy has estimated on the basis of company reports and its own research and analysis.

OPEC is also riven by internal conflict, particularly the rivalry between Saudi Arabia and Iran.

Qatar, a Saudi rival and Iranian ally, said this week it would leave OPEC in January.

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