Opec member states and allies led by Russia could consider cutting up to a million barrels per day, if needed, after the group raised concern over higher global supply hitting the markets next year, the Saudi oil minister said on Monday.
"I think the consensus among all members is that we need to do whatever it takes to balance the markets and if that means trimming supply by a million bpd, we will do it,” Khalid Al Falih told a ministerial panel at Adipec in Abu Dhabi.
He added that the production increase seen from May, where Opec+, as the alliance is called, added over a million bpd back into the markets had “achieved a purpose” as a three-digit price level would have been “very, very uncomfortable,” he added.
Opec and Russia could revise their strategy, their oil ministers said at the conclusion of the Joint Ministerial Monitoring Committee meeting in Abu Dhabi on Sunday.
The two companies are looking at possible cuts as record-high US production of 11.6 million bpd, outpaced Saudi Arabia’s 10.7 million bpd and Russia’s 11.4 million bpd.
Opec’s de-facto leader Saudi Arabia is expected to draw back its exports for the month of December by as much as 500,000 bpd as it anticipates lower winter demand, its oil minister said on Sunday.
Oil prices, which rose above $85 a barrel in October, fell to less than $70 a barrel last week amid a supply glut. The uptick in supply and the US granting of waivers to eight countries to keep importing Iranian oil despite US sanctions re-imposition this month have contributed to the oil price fall.
"The initial headlines coming out of...Abu Dhabi that Saudi Arabia has committed itself to lower production output should be enough to prevent the value of oil from falling any further, at least for now," said Jameel Ahmad, global head of currency strategy & market research at FXTM. "It does appear at least on headline that the consensus is that the price of oil would benefit from less supply heading into 2019."
Russia and Saudi Arabia led efforts to strike an the accord in 2016 to trim 1.8 million bpd from the market starting January last year. This helped prices recover from the troughs of less than $30 a barrel in the first quarter of 2016.
The US had contributed to volumes and there was an "inventory build-up" which needed adjustment," Mr Falih said.
Opec aims to lower inventories to their five-year average.
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Brent jumped about 2 per cent following the comments made by Mr Al Falih to $71.59 barrel around 12:00pm Abu Dhabi time on Monday.
UAE energy minister Suhail Al Mazrouei said other factors such as a stronger dollar and the risk of trade wars posed significant threats to the global oil markets as much as an impending supply glut.
"The risk of trade war, changing some of the fundamental bilateral trade among countries are some additional risks. Strengthening of the dollar against other countries is another risk we need to look into,” he told the panel.
While market analysts worry over a suddenly bearish market, Mr Al Falih cautioned against being driven too keenly by sentiment over fundamentals and that the group must support members facing critical challenges due to sanctions and other disruptions.
"There are sanctions on Venezuela and disruptions in Libya. Sanctions did not pull [oil] out of the market as many had anticipated. [There is] stronger return to stability for Libya, and Nigeria [is] stabilising and as members of Opec we want them to supply and grow,” said Mr Al Falih.
Meanwhile, BP chief executive Bob Dudley told The National the announcement by Saudi Arabia to cut production "will firm the price in 2019."
"The price of oil remaining roughly around $70 in Brent crude and $60 in West Texas Intermediate and consolidating around these levels would be appropriate in the greater scheme of things, considering the ongoing external uncertainties around trade tensions and pressures in emerging markets that are seen as large risks for slowing global growth," said Mr Ahmad.
