Oil price rises as Saudi Arabia cuts output

Jeannie Matthews
January 5, 2019

The Saudis have used the price-boosting strategy in the past to shrink USA stockpiles, the most transparent and closely-watched inventories in the world. The growth in United States exports of crude oil and petroleum products led to a one-week period in late November when the country was a net exporter for the first time in EIA's data history.

Brent crude futures LCOc1 were at $56.60 per barrel at 0741 GMT, up 65 cents, or 1.2 per cent, from their last close. This will reduce output by 1.2 million barrels per day.

Oil cargoes departing from OPEC nations to the United States fell to 1.63 million barrels per day (bpd) last month, down from 1.80 million bpd in November and 1.78 million bpd in October, the data show.

West Texas Intermediate for February delivery was still up 1.7 per cent to US$47.87 a barrel on the New York Mercantile Exchange at 11:27 a.m.

Traders pointed to signs that Saudi Arabia is beginning to make good on vows to cut output. This came just two days after the US government figures showed the nation's output hit another all-time high in October at 11.54 million bpd.

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Figures from ClipperData have shown that loadings of Saudi crude on ships bound for the United States have been falling in recent months. That's after global stocks had their worst December rout since 2008 on concern the U.S. Federal Reserve's tighter monetary policy will weigh on growth.

Brent crude headed for its biggest weekly gain since December 2016 as Saudi Arabia's production cuts outweighed concerns over the health of the global economy.

"It looks like they are very much targeting inventory in the US, as that affects the high-frequency data that moves traders in or out of the oil market", said Bart Melek, head commodity strategist at TD Securities in Toronto. "I made calls, I said you better let that oil, that gasoline flow, and they did". Russian Federation reported that it pumped 11.16 million bpd in 2018, marking a post-Soviet era record.

China's factory activity falls, adding to concern about economic slowdown and fuel demand.

"The current bearish bias will therefore continue in the near term and it stands to reason that oil will struggle to break out from its current trough", he said. While OPEC's output plunged by the most in nearly two years last month and producers have pledged to curb supplies through the first half of 2019, concerns about oversupply prevail as stockpiles at America's main storage hub show signs of swelling. "We could see even lower imports from OPEC". The kingdom's cutbacks reduced OPEC's overall output by 530,000 bpd last month, the group's sharpest pullback since January 2017. The energy minister for the United Arab Emirates said on Tuesday he remained optimistic about achieving a market balance in the first quarter.

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