Oil rises as Saudi Arabia seeks to tackle oversupply

Oil prices rose about 1 percent on Monday, breaking a stretch of losses, after Saudi Arabia said OPEC and its partners believed demand was softening enough to warrant an output cut of 1 million barrels per day next year.

Saudi Energy Minister Khalid al-Falih said the Organization of the Petroleum Exporting Countries and its allies agree that technical analysis shows a need to cut oil supply next year by around 1 million bpd from October levels.

Brent crude futures were up 70 cents at $70.88 a barrel by 11:05 a.m. EST (1605 GMT), following four sessions of losses. U.S. crude rose 60 cents to $60.79 a barrel, the first increase after the longest stretch of daily declines since 1984. Prior to Monday`s increase, crude futures had fallen for 10 straight trading sessions.

Saudi Arabia, the world`s largest oil exporter, said on Sunday it would cut its shipments by half a million bpd in December due to seasonal lower demand.

"We`re kind of back to square one: It must feel like November 2016 to them, a lot," said John Kilduff, a Partner at Again Capital Management in New York, refering to the time period when OPEC and its allies agreed to initiate production cuts. "The Saudis and Russians, especially, rushed production to market to offset losses that aren`t materializing."

The market had anticipated that exports from OPEC member Iran would fall precipitously following the institution of U.S. sanctions in November. However, the U.S. has granted waivers to certain major importers of Iranian crude, diminishing the expected cuts.

OPEC and the International Energy Agency release their respective monthly reports on the outlook for oil supply and demand later this week.

Oil prices have fallen around 20 percent in the last month, hit by an increase in global supply and the threat of a slowdown in demand, especially from customers whose currencies have weakened against the dollar and eroded their purchasing power.

"While the oil price has opened on a solid footing today, the knee-jerk reaction to the meeting is likely to subside in the short term until investors take solace in visible signs of a reduction in supply and OPEC lives up to the rhetoric of further supply cuts," said Aneeka Gupta, associate director at exchange-traded fund provider WisdomTree.

Output from the world`s top oil producers Russia, the United States and Saudi Arabia has risen by 1.05 million bpd in the last three months, based on official output figures.

This has left OPEC scrambling to adjust its own output, which, at around 33.3 million bpd, accounts for roughly a third of global supply.

An official from group member Kuwait said on Monday major oil exporters had over the weekend "discussed a proposal for some kind of cut in (crude) supply next year", although the official did not provide any detail.

One of OPEC`s biggest problems is the surge in U.S. output.

"One thing that is abundantly clear, OPEC is in for a shale shocker as U.S. crude production increased to a record 11.6 million barrels per day and will cross the 12 million threshold next year," said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)