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Oil drops after Trump urges OPEC not to cut output

Oil drops after Trump urges OPEC not to cut output

Mubasher: Oil prices dropped on Tuesday after US President Donald Trump demanded the Organization of Petroleum Exporting Countries (OPEC) not to lower production to support the market.

By 10:51 am GMT, US Nymex crude futures dropped 2.37% to $58.51 per barrel (pb), while international benchmark Brent futures fell 2.27% to $68.53 pb.

Both contracts have lost more than 20% of their value since early October.

“Sky-high production in the US, coupled with incremental barrels coming from Saudi Arabia and Russia is starting to impact oil market balances,” Bank of America Merrill Lynch said in a note.

“As such, crude oil inventories are starting to increase once again,” the US bank added, predicting US production to break through 12 million barrels per day (bpd) in the next year, leading to the country’s “energy independence.”

Outside North America, Kazakhstan said on Tuesday that its oil production rose 4.8% to 74.5 million, or 1.82 million bpd, over the first ten months of the year.

On Monday, Saudi Energy Minister Khalid al-Falih said that OPEC agreed on the need to slash around 1 million bpd from the market next year from October levels to prevent glut.

With sufficient global supply, along with the threat of an economic slowdown “cuts over 2019 are unavoidable [as] it is becoming clearer that as we move closer toward 2019, the market will see a sizeable surplus at least over the first half of 2019.”

President Trump pressured Saudi Arabia and OPEC not to cut supply for supporting markets.

“Hopefully, Saudi Arabia and OPEC will not be cutting oil production,” Trump said via Twitter, adding that “oil prices should be much lower based on supply!”

Oil prices saw “a correction” following the Trump tweet in which the US president expressed disapproval of the measure by OPEC’s de-facto leader Saudi Arabia to cut supply, Australia and New Zealand (ANZ) bank said.

Moreover, the dropping prices came as the US dollar hovered near 16-month high on Tuesday, which pushed crude import prices higher for any country using other currencies domestically.