Oil Prices Rally As Russia May Be Joining The Cuts

Oil Prices Rally As Russia May Be Joining The Cuts

Oil futures climbed to their highest settlement in almost four years in early October, only to drop to a more than one-year low in late November.

OPEC is expected to cut production in an effort to stave off a global glut in supplies.

Despite the firmer prices, crude oil has lost nearly a third in value since early October because of an emerging supply glut following a global surge in production, including from the United States, Russia and by the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC). The Organization of the Petroleum Exporting Countries and its allies are mulling over an output cut of 1 million barrels a day or more at a meeting next week in Vienna, as the group looks to stabilize prices that have plunged more than 30 percent since October.

Futures for WTI crude oil for January in electronic trading on the NY Mercantile exchange (NYMEX) is $49,56 per barrel, or $0.73 per (1.45 percent) below the level of the previous session.

In November 2014, Saudi Arabia chose to maintain production and allow prices to fall, which temporarily halted the USA shale boom but wrecked the kingdom's finances and pushed its economy into recession.

Now it's in Riyadh's interest to put a floor beneath oil prices and bring them back up to their "fiscal breakeven level" - the level at which the country's budget can be balanced.

But the kingdom is wary of upsetting Trump, who has always been vocal - especially via Twitter - about what he sees as the Saudis' obligation to help keep prices low.

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

Oil prices are heading towards their worst monthly decline in a decade on fears that overproduction will lead to a surplus of supply next year.

Meanwhile, a growing number of senators have called for sanctions on US weapons sales to the kingdom and a halt in support for its war in Yemen, where tens of thousands have been killed and several million are facing starvation. Of course, the key question remains by how much.

Both markets had climbed more than 1 percent in early Asian trade.

The US Energy Information Administration, meanwhile, said nationwide crude stockpiles jumped by 3.58 million barrels last week, well above the 1 million barrel increase predicted by analysts in a Bloomberg survey.

Saudi Energy Minister Khalid al-Falih said signals from Iraq, Nigeria and Libya were positive ahead of the group's December 6 talks because all ministers want to restore oil market stability. "This will be necessary to avoid severe oversupply in 2019 and to maintain Brent prices within the desired range of $70-80".

US West Texas Intermediate (WTI) crude futures were at 51.41, down 4 cents.

Richard Robinson, manager of Ashburton Global Energy Fund, sees the current bear market mode as merely fleeting.

But there are still those in the markets with a more bearish outlook.

"The magnitude of the cut will determine where oil prices go", Khoman said.

Saudi Arabia faces a familiar but uncomfortable choice: cut production to defend prices or allow prices to fall to protect market share.

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