Oil rises on Saudi plans to cut supply

Singapore — Oil prices rose by more than 1% on Monday after top exporter Saudi Arabia announced a December supply cut, a measure probably aimed at halting a market slump that has seen crude decline by 20% since early October.

Front-month Brent crude futures, a benchmark for global oil prices, were at $71.37 a barrel at 5.31am GMT, up $1.19, or 1.7%, from their last close.

US West Texas Intermediate (WTI) crude futures were at $60.87 a barrel, up 68c, or 1.1%.

Saudi Arabia plans to reduce oil supply to world markets by 0.5-million barrels a day in December, its energy minister said on Sunday, as the Opec power faces uncertain prospects in getting other producers to agree to a co-ordinated output cut.

Khalid al-Falih told reporters that Saudi Aramco’s customer nominations would fall by 500,000 barrels a day in December versus November due to seasonal lower demand. The cut represents a reduction in global oil supply of about 0.5%.

Saudi Arabia is the de facto leader of oil cartel Opec.

Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore, said Opec was “focused on mitigating downside risks” after crude prices declined by around 20% over a month following a supply surge, particularly from the top three producers the US, Russia and Saudi Arabia.

“Saudi Arabia has stepped in front of the oil market bears, proactively announcing they will reduce exports,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

A big concern for Saudi Arabia and other traditional producers from the Middle East-dominated OPEC is the surge in US output.

US energy firms last week added 12 oil rigs in the week to November 9 looking for new reserves, bringing the total count to 886, the highest level since March 2015, Baker Hughes energy services firm said on Friday.

The rig count indicates U.S. crude output, already at a record 11.6-million barrels a day, will increase further.

“One thing that is abundantly clear, Opec is in for a shale shocker as US crude production increased to a record 11.6-million barrels a day and will cross the 12-million threshold next year,” Innes said.

Reuters