Crude Plunges After Saudi's Propose Smaller-Than-Expected Production Cut

Data source Bloomberg

Oil prices skid amid global stock market slump, swelling US supply

Saudi Arabia's Energy Minister Khalid Al-Falih said on Thursday reducing production by one million barrels per day would be enough for OPEC Plus.

Russian energy minister Alexander Novak is understood to have flown back from Vienna earlier today for possible talks with President Vladimir Putin. A delegate from another country said some members believe a smaller reduction would be adequate. If Russia contributed around 250,000 bpd, the overall cut could exceed 1.3 million bpd. A cut of a million barrels would be the minimum to support the market, and anything less could see the price of oil fall another $10 a barrel, according to Wilson.

To raise prices, OPEC members, who account for more than half of the world's oil output, will spend the next two days evaluating whether to renew their cooperation with Russian Federation and other non-cartel producers, or simply slash production further.

U.S. President Donald Trump tweeted Wednesday that "Hopefully OPEC will be keeping oil flows as is, not restricted". In preparatory meetings ahead of this week's summit, delegates had said a cut of as much as 1.3 million barrels a day next year is needed as demand growth slows and USA shale production surges.

The cuts would take September or October 2018 as baseline figures and last from January to June, Oman's oil minister Mohammed bin Hamad Al-Rumhy said on Wednesday.

"Countries participating in the agreement will have to cut their combined output by at least 1 million bpd from the October 2018 level in order to have a meaningful bullish effect on oil prices".

Data Source Bloomberg

On Thursday, Brent futures fell more than 2% as traders began to doubt Opec would deliver a significant cut. The OPEC-Russia alliance was made necessary in 2016 to compete with the United States' vastly increased production of oil in recent years.

Prices have fallen partly because the United States issued waivers for sanctions imposed on Iran at the start of November. But Washington gave sanctions waivers to some buyers of Iranian crude, further raising fears of an oil glut next year.

That left the oil market dangling in uncertainty before non-OPEC allies join the group for a second day of talks on Friday. Saudi Oil Minister said that PM Modi in a private meeting had pitched for cheaper fuel prices which strongly shows that he does care about the Indian consumers.

On Wednesday, Trump had taken to Twitter to urge producers to keep pumping.

So far, Trump has supported Saudi Arabia's version of the story, which exonerates Crown Prince Mohammed bin Salman of any involvement in the murder, despite U.S. intelligence agencies allegedly telling Trump the prince was involved. He said that they don't think that the U.S. will benefit from an over-supplied market for an extended period of time where investment flow stops and the fantastic growth in USA stale and is brought to a halt again just like in 2015-2016.

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