Crude oil futures pop higher as Saudi Arabia vows to cut production

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Oil prices advanced Monday after Saudi Arabia announced plans to cut output in the face of global oversupplies and demanded that other producers followed suit.

"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.

"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 before the meeting.

Oil prices have since come under downward pressure from rising supplies, despite the new USA sanctions on Iran. "Oil prices should be much lower based on supply!"

West Texas Intermediate crude also dropped to a nine-month low, below $60 a barrel.

Meanwhile, WTI has traded at a discount of $8 to $10 per barrel relative to the global Brent crude benchmark recently. "In contrast, if oil prices fall it will benefit the currencies of major oil-importing emerging markets including the Indian rupee and Turkish lira".

"We're kind of back to square one: It must feel like November 2016 to them, a lot", said John Kilduff, a partner at Again Capital Management in NY, referring to the time period when OPEC and its allies agreed to initiate production cuts. Since May, Opec production has risen 820,000 barrels a day, and Russia's output increased from 440,000 barrels a day in May to 11.4 million b/d in October.

But the producer nations eased the output cuts in June after signs of a tight market and higher prices, allowing hundreds of thousands of extra barrels into the market.

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The US also hit a record-high of 11.6m bpd in November, CNBC reported.

Not even Saudi Arabia's promise to cut exports was enough to stem oil's slide.

Speculators have pulled back on heavy bets on an oil rally, a process that continued Tuesday, traders said.

The bank added that it expected US crude production, already at a record 11.6 million barrels per day (bpd), to break through 12 million bpd in 2019, making the United States "energy independent".

"The balances for 2019 do show, especially in the first half of the year, that there will be significant global oversupply", Petromatrix analyst Olivier Jakob said.

The calculus for oil-producing countries in the Gulf is different. EIA estimated that US crude oil production will average 10.9 million barrels per day in 2018 and 12.1 million barrels per day in 2019, an increase of 160,000 barrels per day and 300,000 barrels per day, respectively.

Unsurprisingly, this view is shared by Vagit Alekperov, CEO of Russia's Lukoil, who told delegates to the Abu Dhabi event on Monday that "I don't see any point in cutting".

Despite the sanctions against Iran, the supply of oil is ample as output from the world's top three producers - Russia, the United States and Saudi Arabia - is rising.

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