Oil Dips as Saudi Says it Will Take Action on Weak Oil Demand

Oil prices fell Thursday. File Image / Pixabay

Crude continued its predictable path on Thursday, with rising U.S. inventories causing Brent to fall 96 cents to $62.52 per barrel and West Texas Intermediate to drop 78 cents to $53.85 - with these losses possibly minimized due to the Thanksgiving holiday in the U.S.

According to the Energy Information Administration, inventories C-STK-T-EIA climbed by 4.9 million barrels to 446.91 million barrels last week, their highest since December, while C-OUT-T-EIA also stayed at a record 11.7 million barrels per day (bpd).

Also of concern in the longer term is the prospect of more U.S. crude heading to market as U.S. pipeline bottlenecks are cleared in the second half of 2019.

Tamas Varga, analyst at PVM, echoed the sentiments of many people in the analytical realm by stating, "The question is what OPEC [the Organization of the Petroleum Exporting Countries] will do in December, will they cut, and if so, by how much?"

The follow-up question on the minds of many people may well be, how will Saudi Arabia act within the framework of OPEC, given that it is under considerable pressure from the U.S. to keep prices down or even lower?

Khalid al-Falih, energy minister for the kingdom, on Thursday seemed to choose his words carefully when commenting on the issue: he told media that "The [U.S.] waivers as to the Iranian sanctions as you know ... so January demand for Saudi Arabia would be lower," and he added the usual promise that his country will work towards a balanced market.

He went on to say that "We will not sell oil that customers don't need; we will not make the market get anxious in the way it did in May or June, but at the same time we make it clear that it is not in anybody's interest to create a glut similar to what we saw few years ago.

"Everybody's interest is in our mind, and we do it with a lot of care, we do it with responsibility, with balance."

It is unclear if taking everyone's interests into account means that the Saudis will still push OPEC at its December Vienna summit to cut output by as much as 1.4 million bpd, especially in light of U.S. president Donald Trump very publicly praising the kingdom on Wednesday via a tweet for pumping full out and forcing prices to drop:  "Like a big Tax Cut for America and the World. Enjoy!... Thank you to Saudi Arabia, but let's go lower!"

Plus, even if the Saudis rejected Trump's pressure altogether and called for cuts, OPEC still faces an uphill battle with its members and allies: Russia, as well as Libya, Iraq, and Nigeria, have repeatedly stated they will be boosting, not lowering, production in the new year, and the cartel's earlier cutbacks have been characterized by widespread cheating and questionable efficacy.