SAUDIS CUTS OIL
PLATTS - Saudi Arabia expects to cut its oil exports next month but emerging signs of a crude glut in the US are not an indication that the global oil market is currently oversupplied, the kingdom's energy minister Khalid al-Falih said Sunday, attributing a two-week slide in oil prices to trader overreaction.
Still, customer demand for Saudi crude has declined, the minister said just before he co-chaired an OPEC/non-OPEC monitoring committee meeting expected to include discussion of production cuts in 2019.
"Production has been steadily going up [but] December nominations [for Saudi crude] are 500,000 [b/d] less than November, so we are seeing a tapering off," Falih told reporters. "We will be shipping less in December than we did in November."
OPEC and its 10 oil-producing partners who have been unwinding production cuts since June, will be mindful not to pump too much in the months ahead, he said, with many forecasters projecting a weaker market in the first quarter of 2019 as demand wanes seasonally and refineries enter maintenance season.
Saudi Arabia, OPEC's largest crude producer and the world's largest exporter, has proposed a return to production cuts of up to 1 million b/d, according to delegates, but not all members of the coalition are on board.
Falih would not confirm the proposal, saying that the monitoring committee would assess market conditions before issuing any recommendation to the larger OPEC/non-OPEC coalition. But he said he would prefer "minimal intervention" by producers with the market.
"Ideally we don't like to cut, ideally we like to keep the market liberally supplied and comfortable, but we can cut if we see a persistent glut emerging," Falih said. "Quite frankly we are seeing some signs of this coming out of the US, [but] we have not seen the signs globally, nor can we predict if they will persist in 2019."
The next full OPEC summit, when any policy decision would be voted on, is December 6 in Vienna, with non-OPEC partners joining the talks a day later.
Russian energy minister Alexander Novak, who co-chairs the committee with Falih, said his country would fulfill its obligations to any production agreement that is in the interests of Russia.
Many Russian oil companies are eager to ramp up output, raising questions over how much they would be willing to cut.
"I want to say that we are as flexible as possible," Novak said, declining to commit on any potential cuts ahead of the talks. "Our agreement allows us to take any decisions and we will carefully look at the situation on the market."
For now, the market is adequately supplied and balanced, Falih said, just as it was when prices hit four-year highs in October over concerns that OPEC would not be able to fully replace Iranian crude shut in by US sanctions, which went into force November 5. The US last week announced it had granted temporary sanctions waivers to eight countries, allowing them to continue buying Iranian crude and mitigating output declines that many analysts had forecast.
US oil production has surged to all-time highs of some 11.4 million b/d in recent weeks, according to the US Energy Information Administration. Russia, too, hit record highs of 11.4 million b/d in October, according to official data.
Oil prices have slid more than $16/b in the last month, with Brent breaking below $70/b earlier in the week.
"There is no reason for the fear that was gripping the market [in October]," Falih said. "It was not a physical tightness it was an emotional reaction. I think with waivers from Washington [and] the weekly inventory data, the market flipped from being overreacting on one side to overreacting on the other side."
Earlier Sunday, Omani oil minister Mohammed al-Rumhy said he viewed the oil market as oversupplied and called the Saudi-led cut proposal a "good start." However, details of how to allocate any cuts have yet to be worked out, he said.
"I think we are on the high side [of supply], and we are seeing some negative symptoms of excess capacity," he told reporters. "There are a lot of ideas, and it will be discussed today."
Kazakhstan's deputy energy minister, Magzum Mirzagaliev, said a resetting of production baselines from which cuts would be determined was being debated. The coalition's 1.8 million b/d cut agreement implemented in January 2017 used October 2016 production levels as the basis for apportioning quotas.
The monitoring committee is composed of ministers from Saudi Arabia, Russia, Kuwait, Venezuela, Algeria and Oman. UAE energy minister Suhail al-Mazrouei, who holds the rotating OPEC presidency this year, is hosting the meeting.
"We will always advise member countries to produce what is required to maintain the market balance," Mazrouei told reporters. "We are not going to advise our member states to overproduce when the market doesn't need it. We do not have an interest in building up inventories."
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