Published: Sat, December 01, 2018
Money | By Hannah Jacobs

Oil hinges on Saudi dilemma: Bust budget or anger Trump?

Oil hinges on Saudi dilemma: Bust budget or anger Trump?

Russian Federation is becoming increasingly convinced it needs to reduce oil output in tandem with OPEC but is still bargaining with the producer group's leader, Saudi Arabia, over the timing and volume of any reduction, two industry sources told Reuters.

There are several reasons why oil prices have been in freefall over such a relatively short space of time, but they all relate to Saudi Arabia and Crown Prince Mohammad bin Salman's tentative alliance with U.S. president Donald Trump.

Possibly complicating any decision at next week's talks is the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul last month.

He described the Crown Prince as the "initiator" of the deal.

"As Saudi Arabia we can not do it alone, we will not do it alone", he told reporters in Abuja where he met his Nigerian counterpart Emmanuel Ibe Kachikwu.

"We are going whatever is necessary, but only if we act together as a group of 25", Falih told reporters, referring to the Organization of the Petroleum Exporting Countries and its allies. That doesn't mean the Kremlin is about to give up its alliance with Saudi Arabia, which extends beyond oil, but it means could drive a hard bargain. "Everybody is longing (to) reach a decision that brings stability back to the market".

The biggest snag in Opec's push for a consensus on cutting oil output could come from relentless growth in supply from its second-biggest producer.

"The aggressive move down from 86 $/b in Brent to below 60 $/b, has to a large extent been in conjunction with falls in equities, as speculative investors sold oil".

Earlier this week, Russian President Vladimir Putin said crude around US$60 a barrel is " balanced and fair", but also added that Moscow is ready to cooperate with its fellow producers. Russian Federation wants more predictability and "smooth price dynamics" in world crude markets, Deputy Foreign Minister Sergei Ryabkov said in Buenos Aires.

But Naimi warned repeatedly that the burden of OPEC and non-OPEC production cuts would fall most heavily on Saudi Arabia and the main beneficiaries would be USA shale producers, and time has proved him correct.

Falih this month said that the abundant supply of oil could require OPEC and its allies to reduce output in 2019.

A monthly Reuters survey indicates that output in November from the 12 OPEC members with supply reduction targets under a previous production agreement fell 110,000 barrels per day from October, while total OPEC output decreased by 160,000 bpd.

The chart shows the cost of production of oil and gas per barrel for the countries by using data from Rystad Energy UCube and The Wall Street Journal.

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