Oil Cut Talk Not Enough to Stop Crude Price Slide

by Ship & Bunker News Team
Monday November 12, 2018

Despite prospective, massive output cuts to avoid a global glut being the talk of the crude industry, oil prices yet again continued their record slide on Monday, with West Texas Intermediate declining 26 cents to $59.93 per barrel and Brent falling 6 cents to close at $70.12.

Specifically, any positive effects of the widespread expectations that Saudi Arabia will drastically cut exports - by over 500,000 barrels per day (bpd), according to media - were said to have been offset by U.S. president Donald Trump tweeting his displeasure over the idea cutbacks and Russia's seeming reticence to curb its own production.

Bart Melek, head of global commodity strategy at TD Securities, observed, "That gave people pause that there may be strong lobbying about to occur from the White House trying to persuade OPEC [the Organization of the Petroleum Exporting Countries] not to act on it's proposal."

Khalid al-Falih, energy minister for the Saudis, justified his kingdom's inclination to cut back by pointing out at an Abu Dhabi oil summit on Monday, "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."

Al-Falih's remarks were backed by Mohammed bin Hamad al-Rumhi, oil minister for Oman, who at the same conference claimed, "Many of us share this view."

But the minister wouldn't elaborate on his remark, which seems at odds with the fact that Iraq has boosted production to a record high, and its fragile economy may make the country's leaders reluctant to change course.

Also, Alexander Novak, energy minister for Russia, indicated that he doesn't believe the oil market will face serious oversupply next year; instead, he thinks there will be a seasonal oversupply during the next few months but that by mid-2019 demand may even exceed supply.

Unsurprisingly, this view is shared by Vagit Alekperov, CEO of Russia's Lukoil, who told delegates to the Abu Dhabi event on Monday that "I don't see any point in cutting ... So far I don't see any necessity for this."

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.

This of course is precisely what Trump does not want, and in one of his latest twitter arguments the fundamentals-minded president remarked succinctly, "Hopefully, Saudi Arabia and OPEC will not be cutting oil production: oil prices should be much lower based on supply!"

Trump may see his wish fulfilled, if CNBC's Mad Money host Jim Kramer proves to be an accurate forecaster: last week the frantic financial guru stated, "Oil is collapsing, guys, it's collapsing; I could make a case for the $40s here - I'm not kidding."