Oil rises on European inventories drop and expected OPEC cuts

Saudi Arabia, the top producer in the Organization of Petroleum Exporting Countries, plans to keep oil exports below 7 million barrels a day next month as it allocates less crude than customers demand, according to unnamed officials from the kingdom.

"One of the world's largest crude suppliers saying they'll try to re-balance the market is providing traders some comfort", said Michael Loewen, director of commodity strategy at Scotiabank.

"Despite a further cut in oil demand growth by the IEA, oil prices are trading marginally higher, as the demand growth cut was already announced previously by the head of the IEA and the agency still expects larger inventory draws for 2H19", said UBS analyst Giovanni Staunovo. Oil struggled as doubts lingered over demand for energy, an apprehension closely connected to Washington's friction with China and other trade partners. The kingdom could have produced about 10.3 million barrels a day because demand is much higher, but made a decision to keep output and exports suppressed and reduce customer requests by 700,000 barrels a day, they said. "There aren't many tools in the tool-box other than faster and deeper cuts", said Bob McNally, president of Rapidan Energy Group and a former oil official at the White House under President George W. Bush.

"If we satisfy September demand we will produce about 10.3 million bpd because demand is much higher, but we chose to keep production and exports flat and cut customer requests by 700,000 bpd". More specifically, it is driven by perception of the trade dispute between China and the United States, prospects for China's economic future and forecasts for China's oil imports.

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"Demand was universally stronger, in all regions". That came after a surprise increase in USA stockpiles, the first gain in eight weeks, helped push down prices on Wednesday.

OPEC's room for maneuver may also be constrained by the USA oil industry.

A US recession would decrease global demand.

Planned gatherings in Abu Dhabi in the week starting September 9 will be critical for leaders of the OPEC+ group, especially the Saudi and Russian energy ministers, to signal their intentions on production in the wake of oil's price collapse, said Helima Croft, chief commodities strategist at RBC Capital Markets. "They have proven they will do so in the past by cutting supply, so there's no reason to question whether they'll do it again". "But we kept exports below 7 million bpd", the Saudi official told Reuters, commenting on Saudi Arabia's strategy to tighten the market.

  • Darren Santiago