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Abu Dhabi summit: Oil production cuts may be necessary

ABU DHABI, U.A.E. – OPEC and allied oil-producing countries will likely need to cut crude supplies, perhaps by as much as 1 million barrels of oil a day, to rebalance the market after U.S. sanctions on Iran failed to cut Tehran’s output, Saudi Arabia’s energy minister said Monday.

The comments from the minister, Khalid al-Falih, show the balancing act the U.S. allies face in dealing with President Donald Trump’s actions related to the oil industry.

Trump in recent weeks demanded the oil cartel increase production to drive down U.S. gasoline prices. “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” he tweeted Monday.

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The U.S. has meanwhile allowed some of its allies, Greece,
India, Italy, Japan, South Korea, Taiwan, and Turkey, as well as
rival China to continue to purchase Iranian oil despite re-imposed
sanctions, as long as they work to reduce their imports to zero.

Al-Falih, who on Sunday said the kingdom would cut production by
over 500,000 barrels per day in December, said Monday that Saudi
Arabia had been giving customers “100 percent of what they asked
for.” That appeared to be a veiled reference to Trump.

Before the United States re-imposed sanctions on Iran, “fear and
anxiety gripped the market,” al-Falih said at the Abu Dhabi
International Petroleum Exhibition & Conference. Now “we’re seeing
the pendulum swing violently to the other side,” he added.

The energy minister of the United Arab Emirates, Suhail
al-Mazrouei, currently the president of OPEC, said “changes”
likely would be necessary as the oil cartel meets in December in
Vienna. However, he added: “We need not to overreact when these
things happen.”

Al-Falih said OPEC officials have seen analysis papers suggesting
a production cut of upward of 1 million barrels of crude a day may
be necessary to rebalance the market. However, he stressed that more
study needed to be done.

“There are a lot of assumptions in their projections that may
change,” al-Falih said. “We don’t want to throttle the global
economy.”

A gallon of regular gasoline in the U.S. on average now sells for
$2.69, down from $2.90 a month ago, according to AAA. Those lower
prices likely quieted Trump, but production cuts could again boost
prices at the pump.

Neither al-Falih nor al-Mazrouei directly criticized Trump, but
Mohammed Hamad al-Rumhy, Oman’s oil and gas minister, blamed the
U.S. president for some of the volatility striking the oil market.
Oman, a sultanate on the eastern edge of the Arabian Peninsula,
maintains close diplomatic ties to Iran and often serves as an
interlocutor between Western powers and Tehran.

“Supply and demand is perhaps the easy part because you can
measure it,” al-Rumhy said. It’s “extremely difficult to quantify
what is happening in (the) White House, almost impossible.”

Iran, which has tense relations with Abu Dhabi, the capital of
the UAE, did not have a high-level official at the summit.

Crude oil dropped to a low of $30 a barrel in January 2016. That
forced OPEC to partner with non-OPEC countries, including Russia, to
cut production to help prices rebound.

Benchmark Brent crude, which had been trading above $80 a barrel
recently, now hovers just over $70 after the U.S. sanction waivers
on Iran.

Meanwhile, Sultan Ahmed al-Jaber, the head of the state-run Abu
Dhabi National Oil Co., said the UAE planned to increase oil
production to 4 million barrels a day by 2020 and 5 million barrels
a day by 2030. The UAE now produces some 3 million barrels of oil a
day.

Al-Jaber also said the UAE would begin fracking, injecting
high-pressure mixtures of water, sand or gravel and chemicals, to
gain access to otherwise unreachable natural gas reserves.

“Make no mistake: Hydrocarbons will continue to play an
absolutely essential part of a diversified energy mix,” al-Jaber
said.

But the highs and lows of the market need to end for both oil
consumers and producers to profit, said al-Rumhy, the Omani
official.

“If it was my heart beat going that way, I think I would be in
the hospital right now,” he said.

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