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Capital Economics reveals implications of Saudi Arabia’s oil supply cut

Oil&Gas Materials 14 November 2018 09:39 (UTC +04:00)

Baku, Azerbaijan, Nov.14

By Leman Zeynalova – Trend:

Obviously a sustained drop in Saudi Arabia’s crude exports would have negative implications for output, UK-based Capital Economics consulting company said in a report obtained by Trend.

“Saudi Arabia has announced that it would cut is oil exports by 0.5 million barrels per day in December. And while it was justified on the grounds of weaker demand from the Kingdom’s customers, it has to be more than a coincidence that the news broke as prices appeared to be in freefall,” said the report.

The consulting company said that interestingly, it is a cut in supply to the market (exports) rather than production. “Obviously a sustained drop in exports would have negative implications for output. But, for now at least and in a nod to OPEC, the country has stopped short of unilateral action on production.”

On the other hand, Capital Economics said that to put the cut in supply in perspective, Saudi production is usually close to an annual low in December owing to seasonal factors (including lower domestic demand for air-conditioning, as it is one of the coolest months of the year). “What’s more, the export cut is coming at a time of very high production in November. “

As for the reports on Saudi Arabia’s intention to dissolve OPEC, the company told Trend that there is no truth to the reports that Saudi is considering dissolving OPEC, as these reports are based on research undertaken by a government-funded think tank into the hypothetical implications of the dissolution of OPEC.

The Saudi Energy Minister has publicly denied that Saudi Arabia is considering such an option, and pledged their commitment to OPEC, said the company.

“Saudi Arabia and OPEC's stated oil policy is to make sure that the market is in balance, and given the importance of oil to the Saudi economy, officials should be cautious in their approach,” noted Capital Economics.

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Follow the author on Twitter: @Lyaman_Zeyn

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