Markets

Saudi Arabia works on convincing Russian Federation to join oil cuts

Saudi Arabia works on convincing Russian Federation to join oil cuts

The Organization of Petroleum Exporting Countries and its allies are desperate to shore up oil prices after a slump of more than $20 a barrel since October.

Iran, Saudi's regional rival and fellow OPEC member, has resisted any notion of cutting its output as its crude exports are being pinched already by US sanctions.

Saudi Arabia has endorsed a moderate oil production cut that will see Opec and its allies slash around a million barrels per day of crude so as not to upset the markets too much and also placate the US President who asked the producers' not to restrict supply.

"We hope to conclude something by the end of the day tomorrow", the Saudi minister, Khalid al-Falih, told reporters, according to Reuters.

"We don't want to shock the market", he added, noting that cutting about a million barrels per day for the whole group should be adequate.

At the end of 2016, OPEC's regular members joined forces with other countries, most notably Russian Federation, to scale back output in a bid to reduce a glut that was weighing on prices.

America turned into a net oil exporter last week, breaking 75 years of continued dependence on foreign oil and marking a pivotal - even if likely brief - moment toward what U.S. President Donald Trump has branded as "energy independence".

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Oil prices briefly pared losses after government data showed US crude stockpiles fell by 7.3 million barrels in the week through November 30.

The US, Al-Falih said, "is not in a position to tell us what to do".

For the week, the United States also posted net exports of 4.2 million bpd. of products like gasoline and diesel.

Brent crude, the global benchmark, has plunged from $86 at the start of October to around $60 recently, over concerns at a glut in supply and faltering in demand. In preparatory meetings ahead of this week's summit, delegates had said a cut of as much as 1.3 million barrels a day next year is needed as demand growth slows and US shale production surges.

While Saudi Arabia has indicated it is willing to cut production, its decision may be complicated by Trump's decision to not sanction the country over the killing of dissident journalist Jamal Khashoggi. Five delegates said the group was waiting for news from Russian Federation as energy minister Alexander Novak who had flown back from Vienna for a possible meeting with President Vladimir Putin. How strongly it does so could depend on Russia's contribution.

Saudi Arabia, OPEC's de facto leader, has made clear that it won't shoulder the burden of trimming production alone.

Qatar, which will leave on January 1, played only a small role in the organisation, providing just under two percent of OPEC's total output. While it said it was purely a practical decision because it mainly produces natural gas and little oil, the move was viewed as a symbolic snub to the Saudi-dominated organization.


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