Abu Dhabi summit: Oil production cuts may be necessary

Saudi to cut oil exports by 500,000 barrels per day in December

Oil prices have staged a recovery, climbing above $70 a barrel after Saudi Arabia said the world's major crude producers agreed that supply needs to be significantly cut next year.

As uncertainty beclouds the future of crude prices, members of the Organisation of Petroleum Exporting Countries (OPEC), met yesterday November 11th, in Abu Dhabi to decide on how to cut crude supply in order to forestall further declines in price.

"We are going to do everything we can to keep inventories and supply demand fundamentals within a reasonably narrow band around balance, and we believe markets will calm down", Saudi Energy Minister Khalid Al-Falih said Monday in a speech at an industry event in Abu Dhabi.

Oil prices rose more than 1 percent on Monday, set for their largest one-day increase in a month after the Saudi comments.

Brent crude oil prices soared to US$85 a barrel in early October in anticipation of United States sanctions being re-imposed on Iran.

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However, at the global level, it will be a new blow to consumers, who will have to pay more for gasoline, and will increase transport expenses of the companies.

Major oil producers of the world are veering around to announcing another major output cut, which will invariably send crude prices higher and end the recent thaw in fuel prices in India. Prices for both WTI and Brent crude - the US and worldwide benchmarks, respectively - have plunged about 20% since early October.

Another benchmark, Brent crude futures, dropped to fall below the 69-dollar level. Talk out of the joint meeting of OPEC and non-OPEC producers on Sunday indicated possible production-cut talks from countries in and out of the cartel come December, which could catalyze another rally in oil.

Iraq, Saudi Arabia, Kuwait and the United Arab Emirates are among Middle Eastern producers that are drilling wells to maintain or boost output, in an expansion comparable to the surge in USA shale oil since 2010. From now on, US sanctions on Iran are unlikely to cut supply as much as expected.

BP (BP) CEO Bob Dudley said the Saudi cut represented "quite a bit of oil".

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Al-Falih said OPEC officials have seen analysis papers suggesting a production cut of upward of 1 million barrels of crude a day may be necessary to rebalance the market.

"However, producers are concerned that the latest selling frenzy could see Brent oil reach $60 or below". One thing that seems clear is that inland oil production has a lot of room to grow, which means producers will need to move a lot more barrels to refineries and export facilities, mainly along the Gulf Coast.

"Prices have been falling amid a continued rise in crude supplies from big producers, such as Saudi Arabia, Russia and the United States, more than compensating for lost Iranian barrels", Forex.com analyst Fawad Razaqzada told AFP.

Russian Energy Minister Alexander Novak estimated his country's average daily oil production in November will be about 10,000 barrels less than that in the previous month.

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