Published: Wed, October 24, 2018
Finance | By Kristine Clayton

Oil price falls below $78 as Saudi Arabia offers more supply

Oil price falls below $78 as Saudi Arabia offers more supply

Falih said that he believes the oil market is "in a good place today in terms of supply and demand balances and inventories" after lifting restrictions on output in June. But the scandal does reveal one thing.

Iran's regional rival, US ally Saudi Arabia, says Riyadh has the capacity to increase output to 12 million barrels per day (bpd) from the current 10.7 million bpd.

We reiterate our expectation for a thorough, credible, transparent, and prompt investigation by Saudi Arabia, in full collaboration with the Turkish authorities, and a full and rigorous accounting of the circumstances surrounding Mr Khashoggi's death.

"I don't rule out that the Kingdom's production, which has been 9-10 (million barrels per day) over the last decade or so will be a million to two millions (barrels) higher", Falih said, without providing a time frame.

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Economist Intelligence Unit energy analyst Peter Kiernan said it would be self-defeating for Saudi Arabia to cut oil supply, as it would risk losing market share to other exporters while losing its reputation as a stable player in the market. Shipping brokerage Eastport on Tuesday said crude prices were "widely expected to decline in coming months, as rising production in the U.S. offsets increasing global demand".

Meanwhile, Russia's oil production is now 150,000 bpd higher than the October 2016 level, the baseline for the global oil production deal, TASS news agency quoted Energy Minister Alexander Novak as saying.

The United States intends to re-impose sanctions on Iran's oil sector in November after unilaterally withdrawing from the Iran nuclear deal in May.

"If 3 million barrels per day disappears, we can not cover this volume".

US Treasury Secretary Steven Mnuchin on Sunday dismissed concerns that oil prices could rise, saying the market had already factored in the loss of Iranian oil.

Al-Falih said plans to diversify the economy will continue, but oil and gas expansion will also remain a priority. "We work to stabilize global markets and to facilitate global economic growth", he added. He added that Riyadh had capacity to increase output to 12 million bpd and its Gulf OPEC ally, the United Arab Emirates, could add another 0.2 million bpd.

However, U.S. crude oil production has climbed by nearly a third since mid-2016, and the rising output could help to offset the loss of exports from Iran.

On Tuesday, he said Saudi Arabia still intends to increase production to meet demand as USA sanctions shrink Iran's crude exports.

US crude inventories have risen by more than 22 million barrels over the last four weeks, the biggest increase since 2015, when the oil market was heavily oversupplied.

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