Saudi Arabia could flood the market with more oil supplies and reverse production constraints, as the world’s largest crude exporter tries to regain price control.
This comes as OPEC+ concluded its last meeting as members pledged voluntary production cuts without making firm commitments, pushing oil prices lower.
“We’ve said one way or another that Saudi Arabia probably needs to get rid of this.” He estimated that Saudi Arabia has the potential to increase its production by an additional 2.5 million barrels per day. For now, the OPEC leader is trying to shore up crude oil by pumping less. On Thursday, it extended its cut by one million barrels per day (bpd) until the first quarter.
But Sanke noted that Saudi Arabia shocked markets in 2014, when it similarly tried to purge the market by lowering crude oil prices from highs of around $110 a barrel to $50.
Eventually, falling prices forced high-cost producers out of the market because pumping was no longer profitable. Meanwhile, Saudi Arabia continued to pump oil because it was better able to withstand lower prices. As supplies disappeared from its competitors, the kingdom was able to regain its momentum on prices.
At the time, as today, the boom in US oil supplies was a headache for OPEC and Saudi Arabia. Sankei said on Friday the oil organization had a “big problem with US production levels.”
In fact, US crude oil production has been in rupture this year, with monthly production reaching a record high in September of more than 13.2 million barrels per day, according to data from the Energy Information Administration.
Oil prices fall on OPEC production cuts+
Oil prices fell more than 2% in the previous session as investors remained cautious about the depth of supply cuts announced by the Organization of the Petroleum Exporting Countries and its OPEC+ allies. Concerns about slowing global manufacturing activity also weighed on market sentiment.
The settlement price for Brent crude futures for February delivery was set down $1.98, or 2.45 percent, at $78.88 a barrel. US West Texas Intermediate crude futures fell $1.89, or 2.49 percent, to $74.07 a barrel. Over the week, Brent fell 2.1 percent, while WTI lost more than 1.9 percent.
At home, on the Multi-Commodities Exchange (MCX), crude oil futures due to expire on December 18 settled down 0.8 per cent at INR 6,231 per barrel, after oscillating between INR 6,210 and INR 6,409 per barrel during the session, versus the previous close of INR 6,281 per barrel.
OPEC+ producers agreed on Thursday to withdraw about 2.2 million bpd of oil from the global market in the first quarter of next year, with the total including an extension of current voluntary cuts for Saudi Arabia and Russia of 1.3 million bpd. Analysts say traders viewed the announcement with some skepticism.
OPEC+, which pumps more than 40 percent of global oil, is cutting output after prices fell from around $98 a barrel in late September due to concerns about the impact of slowing economic growth on fuel demand.
The cuts agreed by OPEC+ on Thursday are voluntary, so there has been no collective review of OPEC+ production targets. The voluntary nature of the cuts has led to some doubts about whether producers will fully implement them or not, as well as on what basis the cuts will be measured.
