Oil prices steady as Saudi Arabia indicates prolonged supply cuts

 Pipework is seen at the fuel refining units at Galp Energia SGPS SA’s oil refining plant in Sines, Portugal, on Friday, April 12, 2013. Galp Energia, Portugal’s biggest oil company, increased output in the first quarter from Brazil as its refineries processed more crude. Photographer: Mario Proenca/Bloomberg via Getty Images

NEW YORK (Reuters) – Oil prices steadied on Monday, supported by Saudi Arabia’s comments indicating OPEC and its allies would continue to tighten the crude market following deep losses last week. Saudi Arabia signaled that the Organization of the Petroleum Exporting Countries, together with Russia, would continue managing global crude supplies to avoid a surplus. “We will do what is needed to sustain market stability beyond June. To me, that means drawing down inventories from their currently elevated levels,” Energy Minister Khalid al-Falih was quoted as saying by the Saudi-owned Arab News newspaper. “There’s no doubt that Saudi Arabia has shown a lot of frustration with the price of oil,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “They’re scratching their heads, saying, ‘Hey, we think the market has it wrong and to prove that’s the case, we’re going to keep cutting production until the market gets it right.’” Brent crude prices have dropped almost 20% from their 2018 peak as global supplies tighten following output curbs by OPEC and Russia, as well as a reduction in Iranian and Venezuelan exports due to U.S. sanctions.

Saudi Arabia pumped 9.65 million barrels of oil per day (bpd) in May, a deeper cut than its production target under the global pact to reduce oil supply, a Saudi oil industry source said on Monday. The nation’s output target under the OPEC-led pact is 10.3 million bpd.

A planned June 4 strike by Norwegian workers could also lead to tighter global supply and buttress prices, potentially cutting Norway’s oil and gas output by about 440,000 barrels of oil equivalents per day if mediation efforts fail. Concerns that a U.S.-China trade war, and threats of tariffs on Mexico from the United States, would diminish global crude demand, however, weighed on oil prices. “Focus has shifted from the supply to the demand side as a U.S.-China trade agreement has proven elusive and as worries over the debilitating effects of tariffs on global economic growth have now shifted to Mexico,” Jim Ritterbusch of Ritterbusch and Associates said in a note. High-level talks were set to begin on Monday between Mexican and U.S. officials.