Oil prices jump on Saudi comments

> Opec and partners believe analysis shows need to cut supply by 1m barrels per day next year

LONDON: Oil rose yesterday after Saudi Arabia said Opec and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day (bpd) next year.

Saudi Arabia, the world’s largest oil exporter, said on Sunday it would cut its shipments by half a million barrels per day in December due to seasonal lower demand.

Brent crude futures were up 52 cents at US$70.70 (RM295) a barrel by 1445 GMT, while US crude futures rose 36 cents to US$60.55 (RM253).

Saudi Energy Minister Khalid al-Falih said yesterday the Organisation of the Petroleum Exporting Countries and its partners agree that technical analysis shows a need to cut oil supply next year by around 1 million bpd from October levels to avoid an unwelcome build-up of unused crude.

Speaking at an industry event in Abu Dhabi, he said demand from Saudi Arabia’s customers in December would fall by more than half a million bpd compared with November and there was a consensus not to allow oil inventory to build up.

“If all things remain equal, and they almost certainly will not as things will change – it is a dynamic market – then the technical analysis we saw yesterday ... tells us that there will need to be a reduction of supply from October levels approaching a million barrels,” Falih said.

“The consensus is that we need to do whatever it takes to balance the market. If that means trimming supplies by a million (bpd), we will.”

US sanctions against Iran had removed less oil than expected from the market, Falih said. Washington has granted exemptions to Iran’s biggest buyers.

“Sanctions didn’t cut so much out of the market as anticipated,” Falih said.

“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.

Opec and the International Energy Agency (IEA) release their respective monthly reports on the outlook for oil supply and demand later this week.

“Opec and the IEA are releasing their updates to the oil market this week and the outlook for 2019 was already on the weak side. I think those reports are going to be even weaker because they will have to adjust for the increase in US production,” Jakob said.

The oil price has fallen by around 20% in the last month, driven lower by a rapid increase in global supply and the threat of a slowdown in demand, especially from customers, such as India, Indonesia and China, whose currencies have weakened against the dollar and eroded their purchasing power.

One of Opec’s biggest problems right now is the surge in US output.

“One thing that is abundantly clear, Opec is in for a shale shocker as US crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore. – Reuters