Oil jumps toward $67 as OPEC, partners discuss supply cut

Alicia Cross
November 16, 2018

Yawger noted that the potential pullback in Saudi output has in part already been made up by the sharp bump in USA production, which reached 11.6 million bpd in the most recent week, a new record.

Brent for January settlement gained 65 cents to settle at US$66.12 on the London-based ICE Futures Europe exchange.

Demand for its crude will be about 31.5 million bpd, which is 500,000 bpd less than its forecast two months ago and 1.4 million bpd below current output, Opec said this week.

A steep slide in oil prices has surprised many oil market participants.

In addition, the US, Russia, and Saudi Arabia also continue pumping out oil at higher production rates than normal to compensate for Iran's shortfall that has yet to come.

"This tweet certainly did not help prices", ING commodities strategist Warren Patterson said.

Saudi Arabia's Oil Minister Khalid al-Falih announced on Monday that the kingdom would cut oil production despite warnings from President Donald Trump.

As a result, oil inventories are rising.

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Oil has barely recovered from a record 12-day decline as investors fled a market battered by swelling supplies and a darkening demand outlook. This in turn has offered a bounce for oil prices with Brent crude jumping 1.4%, potentially establishing a near term bottom.

Even as the Saudis floated the possibility of a cut in production, the selling has not abated.

The downturn has been going on for several weeks, as the US and Russian Federation showed signs of higher levels of production and Saudi Arabia appeared willing to let prices fall.

The crash in oil prices appears to be overdetermined. The producer group said growth in supplies from non-OPEC countries would outpace growth in demand, "leading to widening excess supply in the market".

Global supply has instead surged, led by soaring output from the world's three-biggest producers - the United States, Russia and Saudi Arabia - who in October broke through joint output of 33 million bpd for the first time, meeting more than a third of total oil consumption. Output, however, rose by 127,000 bpd to 32.9 million bpd, OPEC said.

Meanwhile, in the US, crude inventories rose by 10.27 million barrels last week, while gasoline and distillate supplies declined, according to a report from the Energy Information Administration on Thursday.

At the same time, supply has been surging, especially due to a 22 percent rise in U.S. crude oil production this year to a record 11.6 million barrels per day (bpd). Those lower prices likely quieted Trump, but production cuts could again boost prices at the pump. Since early October, the oil price has fallen by a quarter to below $70 a barrel, its lowest in eight months, which may protect demand to an extent, the IEA said.

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