Image: A/S Global Risk Management

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Oil prices slip as Saudi Arabia looks likely to increase output and weekly oil stocks data likely points to a build in crude inventories.

Oil slipped below $80 a barrel during Monday as Saudi Arabia pledged to raise its crude production to a record of 11 mbpd. from the current 10.7 mbpd. This is announced just two weeks before U.S. sanctions against Iran are put in full effect. The question is whether this increase in production is possible.

Allegedly, there is a clear intention of raising output to compensate for supply losses elsewhere, and Saudi Arabian Energy Minister Khalid al-Falih has started stating that oil and politics will be kept separated. However, several U.S. lawmakers have suggested imposing sanctions on Saudi Arabia in recent days while the world's largest oil exporter has earlier pledged to retaliate against any sanctions with "bigger measures". For now though, it seems that U.S. / Saudi tension is limited.

Hedge fund managers increased profit-taking in crude oil and refined fuels last week as confidence and market sentiment fell. Combined, hedge funds and other money managers cut their net long position in the six most important petroleum futures and options contracts by 133 million barrels in the week to Oct. 16. The change of net long position came from liquidation of old long positions (-119 million barrels) while the number of new short positions increased only slightly (+14 million barrels).

Later tonight, the weekly oil stocks data from American Petroleum Institute is published one day ahead of the Energy Information Administration report. Consensus for crude oil stocks is a build of 3.5 mio. barrels.