Oil costs down regardless of Saudi export cuts

An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield operated by Saudi Aramco in Manifa Saudi Arabia on Wednesday Oct. 3 2018. Bloomberg

OPEC kingpin Saudi Arabia will slash its oil exports in January by 10 percent compared to November, the energy minister said Wednesday.

Khalid al-Falih said the kingdom, the world's top crude supplier, would cut its exports to 7.2 million barrels per day in January, down from 8.0 million bpd in November.

However, "a cause for concern is that the EIA (Energy Information Administration) data was not all rosy, as the crude drawback of 1.7 million barrels came below market expectation of a 2.5 million barrel draw back", he added.

Al-Falih told reporters in Riyadh the bond is "probably going to be in US dollars", and having bonds and commercial paper as one of its sources of capital is "prudent and necessary". "We are concerned about volatility in the oil market". That figure is "more than sufficient to bring balance to the market", said Falih, adding that the production cut would trim excess supply from the market.

In December, the Organization of Oil Exporting Countries made a decision to reduce oil supply by 1.2 million barrels starting January.

It said the new figures have been backed by an independent third-party certification by leading consultants DeGolyer and MacNaughton (D&M).

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The audit will dispel scepticism in the oil industry about the size of Saudi reserves and provide assurance for potential investors in Aramco investors, should the initial public offering which has been delayed eventually go ahead.

The energy ministry said that Saudi reserves were 268.5 billion barrels of oil and 325.1 trillion standard cubic feet of gas at the end of 2017, Arab News reported, citing the official Saudi Press Agency.

That debt sale would force the world's largest oil producer to disclose its accounts to investors for the first time since its nationalization roughly four decades ago.

But the kingdom has posted budget shortfalls each year since a major 2014 crash in crude prices, and has turned to borrowing as well as pursuing economic reforms. Meanwhile, promises of patience in raising interest rates from Fed Chairman Jerome Powell soothed anxiety about growth in the US, the biggest oil consumer.

A trade agreement could mitigate the global economic slowdown and keep global oil demand high; however, failure to reach a deal would worsen economic growth prospects and keep a downward pressure on oil demand and prices, according to experts.

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