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Production cuts to boost trading sentiment in Asian sour crude market

The Middle East sour crude market started the week with some diminished supply-side concerns following signals from OPEC and its oil producer allies to return to production cuts from next year, market sources said Monday.

Market sentiment was weak last week not only in reaction to key oil producers having boosted production in recent months, but also due to the US sanctions waiver for Iranian crude and a lack of fresh demand amid cuts for some Middle Eastern crude official selling prices.
In addition, intermonth spreads for prompt Dubai swaps had flipped into contango merely days after the structure weakened in a similar manner for forward swap months, S&P Global Platts data showed Friday.

From the Join Ministerial Monitoring Committee meeting Sunday, Russian energy minister Alexander Novak said projections of market surpluses in early 2019 range from 1 million to 1.4 million b/d. That means the 25-country OPEC-led producer coalition likely will have to reverse the 1 million b/d output increase it instituted in June to avoid a price slump.

But the Joint Ministerial Monitoring Committee said that with significant uncertainties in the market — including how much Iranian crude will be shut in from US sanctions and how quickly — it was not yet recommending any specific cuts.

Saudi Arabia, OPEC’s largest producer, expects to cut its oil exports next month by as much as 500,000 b/d, Saudi energy minister Khalid al-Falih said prior to the committee meeting, as customer demand for the kingdom’s crude had declined.

“December nominations [for Saudi crude] are 500,000 [b/d] less than November, so we are seeing a tapering off,” Falih told reporters. “We will be shipping less in December than we did in November.”

Prior to the Iranian sanctions waiver, UAE’s Abu Dhabi National Oil Company had previously put forward aggressive plans to increase production in the Persian Gulf between 2018 and 2020; and ADNOC said it intended to boost its oil production capacity to 4 million b/d by the end of 2020 and to 5 million b/d by 2030; and had also announced new discoveries totaling 1 billion barrels of oil.

US sanctions on Iranian crude exports went back into effect last Monday, although top buyers of Iranian crude were given temporary waivers until May, when they will be expected to cut their purchases significantly.

The US gave temporary waivers to China, India and Turkey — Iran’s top buyers — as well as Japan, South Korea, Italy, Greece and Taiwan. However, the US is maintaining its goal of eventually reducing Iranian crude exports to zero.

Iranian crude exports to China averaged 783,500 b/d in October, up from around 752,000 b/d in May, Platts trade flow software cFlow showed. Iran has sent almost 20 million barrels of crude and condensate into leased storage in China in preparation for the sanctions.
Source: Platts

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