Major oil producers said on Sunday that crude supply next year would outstrip demand and signalled they may agree to production cuts when OPEC meets next month in Vienna.
On the back of this news, the global oil benchmark, the Brent crude, went up by more than 1.2% to trade at $71.27 per barrel.
Saudi Arabia raised its production from around 9.9 million barrels per day (bpd) in May to around 10.7 million bpd in October, according to Energy Minister Khalid Al-Falih.
The latest price slump comes after the United States boosted production of shale oil, while Saudi Arabia, Russia and others raised supplies of crude amid signs of slowing demand.
Members of the Organization of Petroleum Exporting Countries also known as OPEC are looking for ways to cut back on oil supply. He noted that in 2015 when OPEC lifted its output by about 2 million barrels a day, just over 2% of global demand at the time, oil prices decreased by roughly a third, while oil stocks experienced a simultaneous plunge.
"If you are a producer in Texas, you have to be happy with the fact that there is a swing supplier in the market that wants to keep prices supported", said Matt Smith, director of commodity research at ClipperData.
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Global oil supply has increased by 3.3% in 2018, while non-OPEC supply is growing faster and USA oil production is up in the double digits. Saudi Arabia has expressed concerns that US sanctions have removed less oil from the market than expected. Sooner or later, oil prices will move toward levels more in line with market forces, which could be even lower than current prices.
Russian Federation has been increasing oil output in recent months, as allowed by a joint decision from OPEC and non-OPEC countries to resume production.
Trump in recent weeks demanded the oil cartel increase production to drive down USA gasoline prices.
That means USA producers have ramped up output even though many of them have been getting less than $60 per barrel for most of the year, far below the global market price of oil. The price of West Texas Intermediate (WTI) for December delivery and Brent crude for December delivery lost 4.7 percent and 3.6 percent, respectively, during the week ending November 9. As a result, the state's rising production could further dampen oil prices, while also spurring the ongoing development of oil-shipping infrastructure, eventually weighing on energy prices across the US.
Although Opec heavy weight Saudi Arabia could not convince other members of the cartel on a collective production cut, the kingdom said on Sunday it will go ahead with a unilateral output cut next month.
Brent futures for January settlement fell 70 cents to US$69.42 a barrel on the London-based ICE Futures Europe exchange. The cut represents a reduction in global oil supply of about 0.5 percent.