Oil: Market fundamentals are turning more favorable for the price - Danske Bank

Muriel Colon
December 13, 2018

Iran gave OPEC the green light on Friday to reduce oil output by around 0.8 million barrels per day from 2019 after finding a compromise with rival Saudi Arabia over a possible exemption from the cuts, an OPEC source said.

Based on the OPEC+ announcement, Saudi Arabia will shoulder most of the cut that is 800,000 bpd while Russian Federation, which has been an important player in global oil markets, and other non-OPEC producers will bear the rest.

US production is expected to average more than 12 million bpd in 2019, an increase of more than 3 million bpd in 2016.

A handful of countries recently began increasing production to offset the effects of a U.S. embargo on Iranian oil. "I know for a fact that oil and gas producers in the USA are probably breathing a sigh of relief that we're providing some certainty and visibility for 2019". He called the move a "relief" that OPEC and allies were able to agree to the coordinated cuts.

"Accordingly, the price outlook for the coming few months still remains skewed to the downside despite today's knee-jerk reaction".

"Hopefully OPEC will be keeping oil flows as is, not restricted", Trump tweeted on Wednesday.

OPEC members are set to slash output by 800,000 bpd, while non-OPEC producers will cut 400,000 bpd. Moscow insists its cut should be gradual and reconsidered after the first quarter since the market may shift, the delegate said, asking not to be identified discussing private deliberations.

OPEC prepared for a further day of talks on oil-production curbs after a summit on Thursday ended with no deal, as Russian Federation resisted the big output cut that Saudi Arabia was demanding.


International Brent crude oil futures fell below $60 per barrel in early trade, but firmed to $60.17 a barrel.

Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has faced demands from Mr. Trump to help the global economy by refraining from paring supplies.

After Tuesday's "mammoth drop from the API, this morning's EIA report has yielded a much more modest draw", said Matt Smith, director of commodity research at ClipperData.

In an October blog post, we cautioned that oil had run ahead of fundamentals and that a release of waivers for Iran oil consumers could cause prices to retrace back to the mid-$70s - effectively erasing some of the geopolitical risk premium that had entered the market.

Mohamed Azmin said this decision is a testament of Malaysia's commitment to worldwide cooperation in facing economic challenges posed by the global oil market.

"Even a 1 million bpd cut could lead to a "sell the news" reaction in the short term", Jefferies added.

Saudi Energy Minister Khalid al-Falih said he was not confident a deal could be reached. "The U.S., by virtue of the fact that we consume oil, is subject to global price fluctuations, supply disruptions, and the geopolitics related to oil supply and oil-producing countries".

Oil prices between $55 to $65 per barrel are a "sweet spot for the US producer and the USA consumer", said Rob Thummel, portfolio manager at energy investment manager Tortoise Capital. For his part, Venezuela's oil minister, Manuel Quevedo, assured that his country will continue to defend oil prices and stability in the world market.

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