Major oil producers foresee oversupply, edge closer to production cuts

Gladys Abbott
November 13, 2018

Saudi Arabia is discussing a proposal to cut oil output by up to 1 million barrels per day by OPEC and its allies, two sources close to the discussions told Reuters on Sunday. This comes as the U.S. imposed sanctions on Iran are directly impacting the global oil market, creating an outcome that many countries did not foresee.

As a result, the state's rising production could further dampen oil prices, while also spurring the ongoing development of oil-shipping infrastructure, eventually weighing on energy prices across the US.

Major producers, including Russian Federation and Saudi Arabia, on Sunday warned that crude supply would outstrip demand next year at a joint OPEC non-OPEC ministerial monitoring committee meeting in Abu Dhabi.

"A new strategy needs to be formed. whether it is a cut in production or something else, but it will not be an increase in production", UAE energy minister Suheil al-Mazrouei said.

Although OPEC was unable to reach an agreement with other non-OPEC producers who also attended the Sunday meeting, OPEC made it known that it is going ahead with the proposed cuts come next year.

But producers eased output cuts in June after signs of a tighter market and higher prices, selling hundreds of thousands of extra barrels. Oman's Oil Minister Mohammed Al-Rumhy said "there is a consensus that there is an oversupply and we need to do something".

The JMMC, a technical committee, is expected to make important recommendations on production cuts to a key ministerial meeting in Vienna next month for the OPEC and non-OPEC producers.

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U.S. West Texas Intermediate (WTI) crude oil futures were at 60.73 dollars per barrel, up by 54 cents, or 0.9 per cent from their last settlement.

"Regardless of what OPEC is doing, the U.S. is ramping up production as fast as it can", said Welch.

Mr Al Falih expressed concern, however, over the recent downward turn of the oil markets, which had through the summer held about $80 per barrel, only to fall to $69 on Friday, after the US Energy Information Administration reported higher US production figures and the White House granted waivers to eight of Iran's top oil buyers.

Decision comes amid fears of oversupply.

"Supply is about 100 million barrels a day and demand is about 100 million barrels a day ..." The bulk of Iraq's oil is exported via its southern terminals, which account for more than 95 per cent of state revenue. The cut represents a reduction in global oil supply of about 0.5 percent.

Several analysts said oil prices were likely to turn bullish again.

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