Energy minister’s remarks help lift price, with Opec likely to confirm move next month

This article is more than 1 year old

This article is more than 1 year old

Oil prices have staged a recovery, climbing above $70 a barrel after Saudi Arabia said the world’s major crude producers agreed that supply needed to be cut significantly next year.

The kingdom’s energy minister, speaking after a meeting of Opec at the weekend, said the cartel believed that production would need to fall by nearly 1m barrels per day (bpd) on October levels.

That would largely wipe out the 1m bpd increase the group agreed in June to try to rein in the price of oil.

Khalid al-Falih’s comments sparked a recovery in the price of international benchmark Brent crude, which rose to $70.83 a barrel and is on course for its biggest increase in a month.

Crude prices hit four-year highs of more than $80 a barrel in late September and early October over fears of the impact of US sanctions on Iranian oil exports, triggering warnings of prices hitting $100.

But the market has turned bearish in the past three weeks due to the US issuing sanction waivers for eight countries importing Iranian crude, record American production and forecasts of slowing demand.

Falih said the US sanctions had removed less oil from the market than expected because of the waivers. “Sanctions didn’t cut so much out of the market as anticipated,” he added.

The energy minister said: “There will need to be a reduction of supply from October levels approaching 1m barrels … The consensus is that we need to do whatever it takes to balance the market.”

Several analysts said oil prices were likely to turn bullish again. “Oil markets are significantly oversold in our view, and we remain convinced that both Brent and [US benchmark] WTI will rebound from their current bearish market mode,” said analysts at MUFG bank.

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Bob Dudley, the chief executive of BP, said: “We can see the volatility … Opec has reduced production since June and quite frankly we would have been over $100 by now [without those cuts].”

He said the waivers had been unexpected, so the market had been readjusting. Speaking in Abu Dhabi, Dudley said Saudi Arabia’s announcement would now “probably firm the price”.

Any formal decision on production cuts by Opec would probably come at its next meeting, in Vienna on 6 December.