Oil Price Sustains Gain As Brent Crude Rises To $59.36 Per Barrel

Oil and gas tanks

Saudi Arabia's energy minister in June had pegged the increase at one million barrels a day.

A seemingly relentless rise in United States crude supply, together with Saudi Arabia's insistence that it will not cut output on its own to stabilise the market, earlier sent Brent crude to another 2018 low below $58 a barrel.

The 2014 market-share strategy, associated with Falih's predecessor as oil minister, Ali al-Naimi, is often characterised as a failure, though it did manage to restrain US shale production for a time. Gasoline supplies fell unexpectedly, but not enough to overcome the pessimism. The price of oil swung from a 52-week high to a 52-week low in just 27 days.

Callum MacPherson, head of commodities at Investec, attributes the "aggressive move down" in the price of brent crude, from $86 to $60, has been due to the oil market being "oversold", with investors selling off.

International Brent crude oil futures were at $59.68 per barrel at 0742 GMT, up 17 cents, or 0.3 percent, from their last close. The kingdom had raised production to an all-time high in November, pumping 11.1 million to 11.3 million bpd. MUFG calculates this to be $75 per barrel.

There are several reasons why oil prices have been in freefall over such a relatively short space of time, but they all relate to Saudi Arabia and Crown Prince Mohammad bin Salman's tentative alliance with United States president Donald Trump.

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Futures fell 2.5 percent in NY, following a report by the Energy Information Administration that domestic oil supplies climbed for the 10th straight week, fed by rising imports.

But despite its sensitive position, under intense global scrutiny with a now increased reliance on political support from the Trump administration, the Saudis are expected to go ahead with cuts, according to a range of market experts.

Front-month Brent futures have fallen by a third since the start of October while the six-month calendar spread is in contango, indicating most traders expect the market to be oversupplied in 2019.

USA crude inventories have hit their highest in a year after a tenth consecutive weekly increase, and are now only 80 million barrels below March 2017's record 535 million barrels, according to the Energy Information Administration. USA benchmark West Texas Intermediate oil was trading at $50.15 on Friday.

By contrast, the price-defence strategy of 2016, involving coordinated output cuts with other OPEC and non-OPEC countries, has been hailed as a triumph, even though it reinvigorated the shale boom.

Richard Robinson, manager of Ashburton Global Energy Fund, sees the current bear market mode as merely fleeting. Capital Economics, a London-based economic research consultancy, forecasts oil prices stabilizing at $55 to $60 per barrel in the "next couple years", as does Frank Gunter, professor of economics at Lehigh University in Pennsylvania. "If the cut between 1.4 million and 1.5 million bpd occurs, we will see a sharp rebound in prices - anything between $5 to $7 or $8 going before Christmas".

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