After almost a year of increasing oil output, the Opec and its allies are now poised to again reduce production with the aim of cutting down supply of crude to the market in 2019 to shore up prices. Saudi Arabia, the largest Opec member and one of the largest producers of crude has announced that starting next month, it would cut down on oil shipments.

“We as responsible producers are going to work, and work hard, to balance the market within a reasonable corridor,” Saudi energy minister Khalid Al-Falih told reporters on Sunday in Abu Dhabi. He said that the kingdom would reduce shipping partly because of “tapering off” of demand for Saudi oil due to seasonal factors.

In recent months that has been a significant drop in the price of crude – dropping from over $84 a barrel to below $70 currently, and that is the reason that Saudi Arabia has decided to cut its daily shipments by 500,000 barrels a day in December compared to shipments in November and acting as the leading Opec member to counter the price rout that has affected both oil producers and energy companies. There could be need for need “new strategies” by Opec and its allies, warned the groups in a statement after a meeting between the oil cartel and other producers on Sunday even though no change in supply policy was announced after the meeting. The statement triggered off speculations of a larger and a more coordinated reduction of supply in 2019.

The significant rout in oil prices in a month has pressurised Opec and other producers to take some action before the scheduled Opec policy meeting in December. Oil pricing is a tricky issue for oil producers because the price has to be such that it should be able to cover the budgets of producers while also being low enough to hold up demand for crude even as they also negotiate the impact on oil supply because of US sanctions on Opec members Iran

it was too early to talk about coordinated production cuts within Opec+ said the Saudi minister despite signs of a glut surfacing in the US. The same voice as the Saudi Arabian minister was heard from Russia and the United Arab Emirates. A cut by consensus of 1 million barrels a day would be agreed by it, smaller oil producer Oman had said earlier.

“With Iranian waivers coming in higher than anyone expected, Saudi Arabia is acting responsibly by reducing its production that it had earlier brought online to offset possible Iranian losses,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd, a consultant in London.

There was meeting held on Sunday in Abu Dhabi of the committee that oversees the 2016 Opec+ agreement to manage supply. “The committee reviewed current oil supply and demand fundamentals and noted that 2019 prospects point to higher supply growth than global requirements,” it said in a statement. Weaker global economic growth “could lead to widening the gap between supply and demand.”

(Adapted from WSJ.com)

Categories: Economy & Finance, Geopolitics, Strategy, Sustainability, Uncategorized