Oil Crashes After Trump Says Prices Should Be 'Much Lower'

Oil Crashes After Trump Says Prices Should Be 'Much Lower'

The IEA estimates total United States oil supply will rise by 2.1 million bpd this year and another 1.3 million bpd in 2019, from a current record of more than 11 million bpd. More recently, and in response to the sanctions, Saudi Energy Minister Khalid al-Falih announced on Monday, a major cut in oil production in a bid to rebalance global markets and to boost oil prices that have fallen by around 20% over the last month as global supply has increased.

The 14-member Opec expects oil supply from its rivals to outpace its own output next year. "If they see that there is dis-balance between supply and demand, (they) will of course take a joint action to reduce supply", said Kirill Dmitriev, head of Russian Direct Investment Fund, the country's sovereign wealth investment body.

Why are oil prices falling?

For the first half of 2019, based on its outlook for non-OPEC production and global demand, and assuming flat OPEC production, the IEA said the implied stock build is 2 million bpd.

On Tuesday, OPEC said in its monthly report that world oil demand in 2019 would rise by 1.29 million barrels per day (bpd), 70,000 bpd less than predicted last month and the fourth consecutive forecast cut. The only question is by how much the group will be reducing.

"Russia and OPEC and Saudi Arabia - they are observing the market".

Previously, the OPEC and several oil producers outside the cartel agreed to cut oil output in an effort to stabilize global oil prices in 2016. On Monday, it was the Saudis that made headlines with the promised 500,000-bpd cut, while reductions from the rest of the group were unclear. By Tuesday, there seemed to be some rumors regarding a matching 500,000 bpd from the rest of OPEC+ for a combined cut of 1 mb/d. OPEC meets on December 6 to set policy for 2019. "The market is quite volatile today".

"These massive crude oil builds that we've seen week after week in the USA, sucked all of the geopolitical risk out of the crude oil price", said Rob Thummel, managing director at Tortoise, which manages $16 billion in energy-related assets. "We have to look into long-term development, into how the price will be stabilised", he said in Singapore. "It's not right for market participants to react to any one-off fluctuations", he said.

He said the increase in shortage and price of crude oil is expected to occur in the event that the sanction continued, adding that the issue is going to impact tremendously on the earnings of Nigeria, which relies on revenues from oil to sustain itself. In an uncertain and volatile market, higher inventories could be "a form of insurance", the agency said, noting that the USA still wants Iran's oil exports at zero, and that ongoing violence and instability in Libya, Nigeria and Venezuela keep open the possibility of more dramatic outages.

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