Saudi cuts oil output as OPEC points to 2019 surplus

A worker checks the valve of an oil pipe at the Lukoil company owned Imilorskoye oil field outside the Siberian city of Kogalym, Russia, January 25, 2016. (Reuters)
Updated 13 August 2018
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Saudi cuts oil output as OPEC points to 2019 surplus

  • Demand for OPEC crude revised down by 130,000 bpd
  • OPEC raised output by just 41,000 bpd in July despite Saudi cut

LONDON: OPEC on Monday forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.
In a monthly report, the Organization of the Petroleum Exporting Countries said the world will need 32.05 million barrels per day (bpd) of crude from its 15 members in 2019, down 130,000 bpd from last month’s forecast.
The drop in demand for OPEC crude means there will be less strain on other producers in making up for supply losses in Venezuela and Libya, and potentially in Iran as renewed US sanctions kick in.
Crude edged lower after the OPEC report was released, trading below $73 a barrel. Prices have slipped since topping $80 this year for the first time since 2014 on expectations of more supply after OPEC agreed to relax a supply-cutting deal and economic worries.
OPEC in the report said concern about global trade tensions had weighed on crude prices in July, although it expected support for the market from refined products.
“Healthy global economic developments and increased industrial activity should support the demand for distillate fuels in the coming months, leading to a further drawdown in diesel inventories,” it said.
OPEC and a group of non-OPEC countries agreed on June 22-23 to return to 100 percent compliance with oil output cuts that began in January 2017, after months of underproduction by Venezuela and others pushed adherence above 160 percent.
In the report, OPEC said its oil output in July rose to 32.32 million bpd. Although higher than the 2019 demand forecast, this is up a mere 41,000 bpd from June as the Saudi cut offset increases elsewhere.
In June, Saudi Arabia had pumped more as it heeded calls from the United States and other consumers to make up for shortfalls elsewhere and cool prices, and sources had said July output would be even higher.
But the kingdom said last month it did not want an oversupplied market and it would not try to push oil into the market beyond customers’ needs.

DEMAND SLOWING
Rapid oil demand that helped OPEC balance the market is expected to moderate next year. OPEC expects world oil demand to grow by 1.43 million bpd, 20,000 bpd less than forecast last month, and a slowdown from 1.64 million bpd in 2018.
In July, Saudi Arabia told OPEC it cut production by 200,000 bpd to 10.288 million bpd. Figures OPEC collects from secondary sources published in the report also showed a Saudi cut, which offset increases in other nations such as Kuwait and Nigeria.
This means compliance with the original supply-cutting deal has slipped to 126 percent, according to a Reuters calculation, meaning members are still cutting more than promised. The original figure for June was 130 percent.
OPEC’s July output is 270,000 bpd more than OPEC expects the demand for its oil to average next year, suggesting a small surplus in the market should OPEC keep pumping the same amount and other things remain equal.
And the higher prices that have followed the OPEC-led deal have prompted growth in rival supply and a surge of US shale. OPEC expects non-OPEC supply to expand by 2.13 million bpd next year, 30,000 bpd more than forecast last month.


‘Get prices down’ Trump tells OPEC

Updated 20 September 2018
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‘Get prices down’ Trump tells OPEC

  • Trump highlights US security role in region
  • Comments come ahead of oil producers meeting in Algeria

LONDON: US president Donald Trump urged OPEC to lower crude prices on Thursday while reminding Mideast oil exporters of US security support.
He made his remarks on Twitter ahead of a keenly awaited meeting of OPEC countries and its allies in Algiers this weekend as pressure mounts on them to prevent a spike in prices caused by the reimposition of oil sanctions on Iran.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!” he tweeted.
“We will remember. The OPEC monopoly must get prices down now!”
Despite the threat, the group and its allies are unlikely to agree to an official increase in output, Reuters reported on Thursday, citing OPEC sources.
In June they agreed to increase production by about one million barrels per day (bpd). That decision was was spurred by a recovery in oil prices, in part caused by OPEC and its partners agreeing to lower production since 2017.
Known as OPEC+, the group of oil producers which includes Russia are due to meet on Sunday in Algiers to look at how to allocate the additional one million bpd within its quote a framework.
OPEC sources told Reuters that there was no immediate plan for any official action as such a move would require OPEC to hold what it calls an extraordinary meeting, which is not on the table.
Oil prices slipped after Trumps remarks, with Brent crude shedding 40 cents to $79 a barrel in early afternoon trade in London while US light crude was unchanged at about $71.12.
Brent had been trading at around $80 on expectations that global supplies would come under pressure from the introduction of US sanctions on Iranian crude exports on Nov. 4.
Some countries has already started to halt imports from Tehran ahead of that deadline, leading analysts to speculate about how much spare capacity there is in the Middle East to compensate for the loss of Iranian exports as well as how much of that spare capacity can be easily brought online after years of under-investment in the industry.
Analysts expect oil to trend higher and through the $80 barrier as the deadline for US sanctions approaches.
“Brent is definitely fighting the $80 line, wanting to break above,” said SEB Markets chief commodities analyst Bjarne Schieldrop, Reuters reported. “But this is likely going to break very soon.”