Oil down 3 percent as Saudi Arabia eases concerns, Wall St drops

Oil prices dipped on Tuesday after Saudi Arabia pledged to play a "responsible role" in energy markets, although sentiment remained nervous in the run-up to USA sanctions against Iran's crude exports that start next month.

Khalid Al-Falih, the Saudi energy minister, said on Tuesday that OPEC and non-OPEC countries, principally Russian Federation, are expected to sign an "open-ended agreement" at year-end that would extend, perhaps indefinitely, a supply agreement first struck in 2016.

Top crude oil exporter Saudi Arabia has pledged to keep markets supplied despite its increasing isolation over the killing of Saudi journalist Jamal Khashoggi. Meanwhile, Iran's oil minister Bijan Zanganeh has said that Saudi Arabia and Russian Federation can not replace Iran' oil as the production capacity of the two countries has reached its peak.

USA light crude dropped $3.03, or 4.4 percent, to $66.33 a barrel, after earlier hitting a two-month low at $65.74.

Concerns over the health of the global economy, leading to the equities sell-off, are seeping into the oil market.

While Saudi Arabia is intent on making up for lost barrels, the outlook for demand next year is deteriorating.

Iran's minister of petroleum says Saudi Arabia has submitted to United States pressure, violating an OPEC agreement reached in June not to raise its production.

Additionally, Fatih Birol, executive director of the International Energy Agency (IEA), said on Monday that other producers may struggle to fully make up for the expected Iran disruption, and that oil prices could rise further.

The minister reiterated that the market is unable to find a replacement for Iran's oil, urging Trump to abandon his plan to impose sanctions on the country.

Falih said that with sanctions on Iran coming into full force next month, there was no guarantee oil prices would refrain from going higher.

"It will become an open-ended agreement to continue to monitor and work together to stabilize the markets".

USA crude inventories have risen by more than 22 million barrels over the last four weeks, the biggest increase since 2015, when the oil market was heavily oversupplied. Riyadh has refrained from using oil as a direct weapon since then.

"I would expect that if we do give waivers, it will be significantly larger reductions", he said in an interview with Reuters.

J.P. Morgan said it raised its 2019 Brent price forecast by a whopping $20.50 per barrel to $83.50 saying this "bullish argument is strongly driven by tighter supply due to Iranian sanctions and declining spare capacity".

"We have sanctions on Iran, and nobody has a clue what Iranians export will be".


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