In a move that could be bullish for oil prices, Saudi Arabia has cut the amount of oil available for export – and told the world about it.
The move was announced by the country’s Ministry for Energy overnight Monday in a move that analysts said was a first for the normally secretive OPEC giant.
Saudi Arabia will allocate fewer barrels of oil for export next month and at a level below current demand. On the face of it, its a positive move, but as always it pays to look deeper and the cuts do not make that big a reduction in the level of Saudi exports as they do on paper.
The Ministry of Energy statement said contracted demand for Saudi crude for November was 7.7 million barrels a day, but the kingdom has assigned just 7.2 million b/d for export – which will customers forced to chase the extra half a million barrels a day from the global market.
Analysts quoted by the Financial Times said the move is a new focus on foreign sales, alongside production cuts aimed at showing the Saudis are serious about slashing the global oversupply of crude and crude products.
But the FT said pointed out that figures can be misleading:
“Although the kingdom is emphasising a fall in exports to about 7.2 million b/d — from 7.8 million b/d in January — the same statement shows it has in fact increased its foreign sales from 6.7 million b/d in September, when the country usually experiences high domestic demand for oil.”
The Saudis have made the deepest cuts of all Opec countries to about 10 million b/d and exports are well below their 2012-16 average. November 2016 exports stood at more than 8.2 million b/d.
Talks are now under way to extend the production cap agreement among Opec and countries outside the cartel, such as Russia, beyond March 2018. Russia said last week that the current cuts — of 1.8 million b/d — could be prolonged until the end of next year if necessary.
But Russia and other producers have not revealed the size of their export cuts, if any. It is doubtful other producers will follow the Saudi lead because they need every barrel of exports to generate revenue for their budgets.
The news had a small impact on prices – December Brent crude, the global oil benchmark rose 17 cents, or 0.3%, to close at $US55.79 a barrel in London, while in New York, US West Texas Intermediate crude for November delivery added 29 cents, or 0.6%, to settle at $US49.58 a barrel.
Mohammad Barkindo, the OPEC secretary-general was quoted by Reuters on Sunday as saying there was a “growing consensus” that a rebalancing process was under way. To sustain that process into next year, “some extraordinary measures may have to be taken,” he told reporters at an oil industry forum in New Delhi.
In other commodities, gold prices rose for a second session Monday as investors sought safe-haven assets with the US and North Korea continuing to exchange verbal threats. A softer UUS dollar also helped to fuel some demand for gold.
Comex December gold added $US10.10, or 0.8%, to settle at $US1,285 an ounce in New York.
Comex December silver added 13.50 cents, or roughly 0.8%, to $US16.92 an ounce, after climbing 0.7% last week and Comex December copper was mostly flat at $US3.025 a pound.
In China, markets returned to trading with shares hitting a 21 month high in the early part of the session (up nearly 2%), but prices eased and Shanghai ended up 0.75%.
The Aussie dollar ended around 77. 55 US cents and Chinese iron ore prices edged higher to just under $US63 a tonne.
The Metal Bulletin’s 62% Fe Iron Ore Index yesterday was $US62.67 per tonne up 43 US cents a tonne.
Wall Street indexes all lost ground overnight Monday – but the falls were tiny. The overnight futures market has the ASX 200 starting trading down 15 points today, but that is a weak guide given the market yesterday was supposed to be weaker at the start, but opened strongly and ended the day up 28 points or 0.5%.
