Oil markets struggle to find footing after 7% slump

Ivan Schwartz
November 14, 2018

Oil prices were hit on Monday after U.S. President Donald Trump put pressure on the Organization of the Petroleum Exporting Countries not to cut supply to prop up the market.

Brent oil prices have plunged 25 per cent since reaching a four-year high of more than $86 per barrel in early October.

The U.S. decision to grant waivers that will allow importers of Iranian oil to keep buying in spite of sanctions confounded expectations of a looming supply crunch, helping trigger crude's collapse.

Why are oil prices falling?

"Oil prices should be much lower based on supply", Trump tweeted. The agreement struck in 2016 was the first such alliance between Opec and the Russia-led group. Saudi Arabia is the largest crude oil producer within OPEC, although the USA and Russian Federation now produce more oil than the kingdom. The richest shale areas in the USA will have been exploited by the mid-2020s, meaning the average well drilled in 2025 will be less productive than today, according to the International Energy Agency's annual World Energy Outlook.

Meanwhile, global economic growth is under threat from heightened trade tensions, economic instability in some emerging markets and uncertainty over the UK's exit from the European Union.

Riyadh indicated on Monday it was on course to ignore the United States president's wishes at OPEC's next meeting due in December because it saw a need to reduce OPEC output by a collective one million barrels per day during 2019.

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Mr Trump's tweet followed weekend reports that Saudi Arabia was considering a production cut at the December Opec meeting, on increased alarm that supply has started to outpace consumption.

What are countries doing to help raise oil prices?

"OPEC NGLs in 2018 and 2019 are expected to grow by 0.10 mb/d and 0.11 mb/d to average 6.34 mb/d and 6.45 mb/d, respectively".

While global output is skyrocketing, concerns have surfaced about the demand outlook.

Meanwhile, rising American output and inventories are pointing to an emerging glut and speculation is swirling over whether the Organization of Petroleum Exporting Countries and its allies including Russian Federation will act to stem the price slump.

The barrel of WTI entered into a bear market last week and remains exposed to further downside risks, with the latest IEA monthly oil market report suggesting a cut in the demand forecast for the OPEC by 300k bpd in 2019.

"OPEC and Russian Federation are under pressure to reduce current production levels, which is a decision that we expect to be taken at the next OPEC meeting on December 6", said Andersson.

Other reports by GizPress

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