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OPEC and Saudi Arabia are reportedly planning to throttle back oil production but will attempt to message the output cut in a way that does not antagonize President Donald Trump.
The strategy. explained by OPEC and Saudi sources to The Wall Street Journal. implies that top OPEC producer Saudi Arabia would slash production by up to 1 million barrels per day.
OPEC is preparing to pull back output because the 15-nation cartel thinks the oil market will be oversupplied next year. Crude prices have plunged more than 30 percent since last month on the growing consensus that supply will soon outstrip demand.
But ahead of OPEC`s policy meeting on Dec. 6. Trump is urging the group against cutting production and imploring the Saudis to help him drive oil prices even lower.
The president praised Saudi Arabia on Wednesday for helping to cut fuel prices by increasing output earlier this year. On Tuesday. Trump declared he`d stand by the Saudis even though the CIA has reportedly concluded that the nation`s powerful crown prince ordered the killing of journalist and U.S. resident Jamal Khashoggi. Trump has repeatedly cast doubt on the CIA assessment this week.
`Because of Khashoggi. the Saudis will do anything to make sure Trump doesn`t do anything nasty.` an OPEC official told The Wall Street Journal.
In light of Trump`s overtures. OPEC and the Saudis plan to reaffirm the output targets they first agreed to in November 2016. the Journal reported on Friday. That means Saudi Arabia would begin cutting output from its target of 11 million bpd this month to its 2016 quota. which is just over 10 million barrels a day.
OPEC reportedly considered announcing a cut of 1.4 million bpd. But by instead saying the group will stick to its 2016 quotas. the group hopes to be more discreet in cutting output. an OPEC official told the Journal.
OPEC agreed two years ago to cut production by 1.2 million barrels per day. Russia and several other producers soon joined the agreement. bringing the total output cuts to 1.8 million barrels per day.
That deal helped drain a global crude glut and boost oil prices from a prolonged slump. But the group eventually took more barrels off the market than it intended and agreed in June to increase output.
Trump publicly lobbied for the output increase ahead of the June meeting. His decision to restore sanctions on Iran. OPEC`s third-biggest oil producer. was pushing up oil prices at the time and played a part in OPEC`s decision to hike output.
However. oil prices have plunged into a bear market over the last seven weeks. That is in part because Trump vowed to impose harsh sanctions on Iran. but then allowed several of the Islamic Republic`s biggest customers to continue importing its crude.
That means global supply shrank less than OPEC anticipated when it started increasing output. Saudi Arabia in particular ramped up output to compensate for the anticipated drop in Iranian supplies.
