Published: Wed, November 14, 2018
Business | By Pearl Harrison

OPEC Countries Thinking of Cutting Oil Production

OPEC Countries Thinking of Cutting Oil Production

It's a big reversal.

US energy firms last week added 12 oil rigs in the week to November 9 looking for new reserves, bringing the total count to 886, the highest level since March 2015, Baker Hughes energy services firm said on Friday. It signals that the world's largest oil exporter won't stand for crude crashing any further.

"Twelve days in a row is insane - but there are a lot of pieces putting pressure on the market", said Bob Yawger, director of energy futures at Mizuho. "We in OPEC always pride ourselves as friends of the United States". Saudi Aramco plans to spend more than $300 billion over the next decade to maintain its 12 million barrel-a-day capacity and boost gas output. That confounded a market that was anticipating a stricter enforcement.

Additionally, the USA has commissioned 12 new oil derricks earlier this month, with the total rig count reaching 886 - the highest number since March 2015.

"We need a floor!"

"That probably would adjust sentiment and get [prices] back into a corridor with less volatility", he told CNN Business.

UAE Energy Minister Suhail al-Mazrouei, left, talks to Khalid Al-Falih, Saudi Energy and Oil Minister, in the opening ceremony of the Abu Dhabi International Exhibition & Conference, ADIPEC, in Abu Dhabi, United Arab Emirates, Monday, Nov. 12, 2018. "If that means trimming supply by a million [barrels per day], we will do it".

Although Opec heavy weight Saudi Arabia could not convince other members of the cartel on a collective production cut, the kingdom said on Sunday it will go ahead with a unilateral output cut next month. Sooner or later, oil prices will move toward levels more in line with market forces, which could be even lower than current prices.

On Friday, crude oil futures ended down $0.48, or 0.8%, at $60.19 a barrel.

Brent and West Texas Intermediate futures have bounced 1.2% on Monday, to $71 and $61 per barrel, respectively.

While the Dow dropped almost 2%, some oil companies with shale exposure, including Hess (HES) and Pioneer Natural Resources (PXD), outperformed.

As the global oil industry recovers from one of the worst slumps in its history, the biggest worldwide energy companies are keeping their checkbooks closed and tightening up on investment so as to boost returns to shareholders.

The coalition of the world's largest oil producers, which includes Russia, Saudi Arabia and Iran, should extend the Vienna Agreement into a third year to keep prices supported, 88 per cent of those polled in the Gulf Intelligence Survey responded.

Delphine Arrighi, a money manager at Merian Global Investors in London: "Rising oil prices would more likely add to concerns over already weakening global growth". "We are not in the business of pinpointing a price going forward".

In 2014-2015, Saudi Arabia took a much different approach aimed at easing a supply glut. As of last week, hedge funds and other money managers had reduced their long position in oil contracts to their lowest since August 2017.

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