Oil Prices Rally As Russia May Be Joining The Cuts

Fredrick Soto
December 1, 2018

The market value of a barrel of WTI crude oil broke above $ 50 is the lowest since September 2017.

Saudi Energy Minister Khalid al-Falih said on Wednesday the kingdom would not cut oil output on its own.

Saudi Arabia dampened hopes of production cuts by OPEC and its allies by saying on Wednesday that it would not act alone and Nigeria stopped short of committing to a new push to curb supplies.

Oil prices have plunged by 25 percent in the last month while the cost of gasoline has tumbled to as little as $2 a gallon in several states.

Adding to the uncertainty in the oil markets were President Vladimir Putin's comments. Putin also said that he was comfortable with an oil price of 60 US dollars, which is "balanced and fair".

Oil producer group OPEC and its allies, led by Russian Federation, meet in Vienna next week against the backdrop of concerns over a slowing global economy and rising oil supplies from the United States, which is not involved in an existing agreement to restrain output.

Brent for January settlement, which expires Friday, dropped 82 cents to $58.69 on London's ICE Futures Europe exchange.

Russian Federation has started to concede that it needs to join a fresh Saudi-led oil production cut, but is still bargaining with its key partner in OPEC over how much, how fast, and for how long it would potentially reduce its oil output, Reuters reported on Thursday, citing two industry sources.

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

While gasoline supplies in the United States unexpectedly fell last week, which led to slight gains in oil prices, they were not enough to overcome the pessimism of the news of an oil supply increase in the country. Iran was also largely exempt from cuts. Even if they can slip an implicit supply cut past Trump, then persuade Moscow to make a substantial supply reduction, few delegates and OPEC watchers believe it would deliver the kind of robust public deal that would send oil prices back to the $75-$85 range seen earlier this year. "The question is whether there's room for agreement among the U.S., Saudi Arabia and Russian Federation on what the right price is". And if trade tensions between the United States and China depress global growth, oil prices could slide anew.

"Thank you to Saudi Arabia, but let's go lower!" Thankful for Trump's public support, the Saudi crown prince, Mohammed bin Salman, might be more willing to tolerate low oil prices than he would have been otherwise.

By August 2018, Saudi Arabia's production was up by 630,000 barrels per day compared with June 2014 and Russia's output had climbed by 525,000 bpd.

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

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