Oil hits 6-week high on hopes of extended OPEC output cuts

Cornelia Mascio
Settembre 12, 2019

Prince Abdulaziz also alluded to the sense that Saudi Arabia is shouldering the burden of production cuts, while other nations - notably Nigeria and Iraq - are flouting the limitations. However, the sell-off that began in early August was news driven.

Iran will not negotiate with the United States while sanctions on Tehran are still enforced by Washington, Rouhani told his French counterpart Emmanuel Macron in a phone call on Wednesday, Iranian state media reported.

Oil accounts for 40% of gross domestic product, 70% of government revenues and nearly 80% of export earnings ("Saudi Arabia: selected issues", International Monetary Fund, Sept. 9).

While the rest of the market was stuck in sideways action, energy sector-related exchange traded funds led the charge Monday on rising oil prices in response to Saudi Arabia energy minister's confirmation that there will be no major change to the kingdom's oil policy.

USA crude stocks fell 7.2 million barrels last week, more than analysts' expectations for 2.7 million-barrel draw, data from industry group the American Petroleum Institute showed. US crude inventories probably dropped for a fourth week through September 6, according to a Bloomberg survey before government data Wednesday.

Similarly, estimated export earnings have fallen from more than $600 million per day in October 2018 to $400 million in June 2019 in the downturn following the end of the second shale boom.

The Buzzard oil field in the North Sea
The Buzzard oil field in the North Sea

"The change at the helm of the Energy Ministry holds the potential to focus on further supporting oil prices, in line with budgetary or domestic purposes", Jean-Michael Sallba, Bank of America Merrill Lynch MENA economist/strategist, wrote from London. Rising non-OPEC manufacturing, significantly from the United States of America, can be offsetting a part of the OPEC+ coalition's cuts, and a few analysts consider that deeper cuts could also be crucial. Weekly U.S. crude production has surged to a record at 12.4 million bpd while a monthly report from the EIA forecast output to average 13.23 million bpd in 2020. While the move could have caused anxiety in trading circles, pressuring prices, assurances that Abdulaziz bin Salman would stay on the current course with regard to production seemed to have appeased the market.

Prince Abdulaziz is likely to revive the more restrained communication style of Al-Falih's long-serving predecessor Ali Al-Naimi, making fewer, but more meaningful public announcements, according to a person who's known the prince for several decades, but asked not to be identified discussing private conversations. It signaled a possible rift with the crown prince over his management of various issues, including reportedly moving too slowly in advancing Prince Mohammed's plan to sell shares in the state-owned oil company Aramco. Products, as luck would have it, will fall by 3 million barrels as well.

"Chopping output will profit all members of OPEC". Saudi Arabia's best option is to allow the adjustment process to play out.

"Some people will say this is a normal situation, but if you look at where prices are, Saudi Arabia is not satisfied with US$60-a-barrel oil", he said. UBS oil analyst Giovanni Staunovo said.

But oil is a deeply cyclical industry, so valuing a company using prices at any one point in the cycle is irrational. But that will depend largely on the price of oil.

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