Oil prices drop amid rising US stocks, OPEC uncertainty

01 December, 2018, 06:26 | Author: Kathy Ellis
  • Saudi Arabia's Crown Prince Mohammed bin Salman arrives in Buenos Aires

Before the OPEC meeting in Vienna, the world's top three producers - the United States, Russia and Saudi Arabia - will be part of a meeting this weekend of the Group of 20 industrialized nations in Buenos Aires, Argentina.

"It's a long shot, but the parties are going to be there and if there's something to be worked out, it can be worked out there", said Ed Morse, a veteran OPEC-watcher at Citigroup.

Data released from the International Energy Agency revealed that the U.S., Saudi Arabia and Russian Federation are pumping crude at record levels, causing supply to surpass demand.

However, one of the most important determinants of oil prices is OPEC.

The market outlook is strikingly similar to 2014, with production from USA shale surging while consumption growth slows as the global economy falters.

Iraq's state oil marketer received about 600,000 barrels of crude at storage tanks it uses in Turkey, according to agents at the port of Ceyhan where the tanks are located.

The kingdom probably needs to keep several hundred billion dollars' worth of reserve assets on hand to maintain confidence in its fixed exchange-rate peg to the USA dollar and prevent a run on the currency. "It will be interesting to see if Saudi-Russia can keep the floor in place". USA crude dropped 29 cents, or 0.6 per cent, to $51.16 a barrel.

USA oil reserves in 2017 exceeded a 47-year-old record when they increased 6.4 billion barrels, or 19.5 percent, to 39.2 billion barrels, the government said. This is the first declining trend since February 2016, the lowest price level in the last decade. It needs crude above $73 on average next year to balance its budget, according to the International Monetary Fund.

But oil trade, vital for Russian economy, is conducted in U.S. dollars, a "monopoly" Russia's President Vladimir Putin wants to end.

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That may give the kingdom a narrow path between provoking the president's wrath and preventing an even deeper oil-price slump.

The market now expects that a cut of 1 million barrels per day would be possible from OPEC and its allies, said John Kilduff, partner at Again Capital in NY.

The price of crude oil went down sharply from 10 in the morning, down more than a dollar.

"The aggressive move down from 86 $/b in Brent to below 60 $/b, has to a large extent been in conjunction with falls in equities, as speculative investors sold oil".

"This led to positive results", Putin said. "As Saudi Arabia we can not do it alone, we will not do it alone". However, the Saudi Arabian minister was less confident than previously, and he did not specify an actual cut in oil production. "In my view, the current price range is comfortable for producers and consumers", Novak told the TASS news agency.

"We are in contact with OPEC and we are ready to continue our joint efforts if needed", Putin said.

The consensus is that the Saudis have few good options. This indicates at a possible trench being created by the oil marketing companies to form a buffer in case the oil prices increase again.

The outcome of next week's OPEC meeting "remains clouded by uncertainty", said Stephen Brennock of oil broker PVM.

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