Fri, Jan 04, 2019 - Page 11 News List

OPEC output falls to rare low

CRUDE FIGURES:The reduction was caused by pre-emptive cutbacks from Saudi Arabia, bad weather, and an attack on an oil field in Libya and sanctions on Iran

Bloomberg

Before its agreement to cut oil supplies even started, OPEC’s production last month plunged by the most in almost two years.

In a sign of the urgency felt by the group amid tumbling crude prices, leading member Saudi Arabia throttled back production, according to a Bloomberg survey of officials, analysts and ship-tracking data.

The group’s pact to curb output only formally started this week.

The kingdom’s deliberate cutbacks were compounded by unplanned losses in Iran, which is being targeted by US sanctions, and in Libya, where protests halted production at the biggest oil field.

As a result, oil output from OPEC last month fell 530,000 barrels per day to 32.6 million per day. It is the sharpest pullback since January 2017, when the group embarked on its strategy to clear the glut created by rising supplies of US shale oil.

A global coalition of oil producers known as OPEC+ — which comprises members of the group and other exporters, including Russia — on Dec. 7 agreed to reduce output during the first six months of this year.

However, crude prices failed to rally and instead slumped to the lowest in more than a year.

Brent crude futures on Wednesday climbed as much as 5.1 percent as shipping data showed that Saudi Arabia was delivering its announced cutbacks. It traded at US$55.74 a barrel at 5:52pm in London. That is about 35 percent below the four-year peak reached in early October.

Investors remain concerned that OPEC+ is not cutting enough to make way for another surge of supply anticipated from shale oil drillers in the US.

They are also increasingly worried that a slowing global economy, coupled with the US-China trade dispute, would hit fuel demand and swell the pile-up of unwanted crude.

Slowdown fears are “putting more pressure on OPEC to stabilize the petroleum markets,” Price Futures Group Inc markets analyst Phil Flynn said. “So let the cuts begin.”

Saudi Arabia last month curtailed production by 420,000 barrels per day to 10.65 million, from a record of just more than 11 million reached in November, the survey showed.

Saudi Arabian Minister of Energy, Industry and Mineral Resources Khalid al-Falih has promised to cut even deeper this month, going beyond the reductions the kingdom signed onto.

As is often the case with OPEC, not all of the supply restraint was deliberate.

Libya’s production fell by 110,000 barrels per day to 1 million per day.

Sharara, the nation’s biggest oil field, has been offline since it was stormed last month by an armed group and demonstrators demanding better government services.

The situation worsened on Wednesday, when bad weather at Es Sider Port forced a separate output reduction of 100,000 barrels per day.

Iran’s crude production fell by 120,000 barrels per day to 2.92 million per day, the survey showed.

The nation’s output has slumped 23 percent since US President Donald Trump in May announced that he would reimpose sanctions.

The penalties resumed in November, although the US surprised importers by awarding many of them temporary waivers, which could cause shipments to rebound this month.

Even with the pre-emptive Saudi Arabian cutbacks, OPEC has plenty of work still to do to fulfill its promises.

The 11 members committed to an overall cut of 800,000 barrels per day, mostly from their October levels, while their non-OPEC partners pledged a decrease of 400,000 barrels per day.

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