By Clyde Russell
LAUNCESTON, Australia, Nov 12 (Reuters) - What a difference a month can make. The crude oil market has gone from worrying about not having enough supply to fretting that prices are being overwhelmed by a glut.
The main news from Sunday's meeting of producers in Abu Dhabi is that Saudi Arabia is planning to cut the amount it supplies in December by 500,000 barrels per day (bpd) from November levels.
While Saudi Energy Minister Khalid al-Falih said the reduction was because of a seasonal drop in demand, it's not hard to read between the lines that the world's largest crude exporter is growing increasingly concerned about the decline in prices.
Having reached a four-year high in early October, Brent crude has slid by about 19 percent to close at $70.18 a barrel on Nov. 9.
It's no secret that the Saudis, and other producers in the Organization of the Petroleum Exporting Countries (OPEC) and its allies, would prefer crude prices to remain north of $80 a barrel, a level that they believe is sustainable.
The elephant in the room for OPEC and its allies, which include Russia, is U.S. President Donald Trump.
Part of the reason oil prices have retreated is producers responded to Trump's pressure for more supply in order to compensate for the expected loss of Iranian barrels with the re-imposition of U.S. sanctions against Tehran on Nov. 4.
However, the Trump administration decided at the last minute to grant waivers to eight users of Iranian crude, including top buyers China and India.
The six-month waivers effectively kicked the can on Iranian sanctions down the road. While the problem of how effective the sanctions will eventually be is still there, it's not an issue for the short term.
THE TRUMP FACTOR
What is also uncertain is exactly how Saudi Arabia, Russia and other producers feel about the actions of the Trump administration.
The Saudis agreed in the middle of the year to supply more crude to the market largely in response to Twitter pressure from Trump. They may now feel they've been played by the U.S. president.
Trump may have succeeded in getting oil prices to decline, with the Iran waivers seemingly being the last straw for any bulls left in the market.
But now the Saudis have stepped in to try and prevent prices from falling further, with Brent gaining as much as 1.4 percent in early Asian trade on Monday.
That gain may not seem too impressive, but it does mean that Brent has avoided, for now, falling into the traditional definition of a bear market.
It briefly touched the threshold of a 20 percent decline during trade on Nov. 9, but avoided closing in bear territory.
If the Saudis and other producers do take steps to limit supply in order to support prices, this will almost certainly spark the ire of the mercurial U.S. president.
The United States still has considerable leverage in the Middle East, and Trump may be prepared to use this in order to keep oil prices low.
The killing of Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul last month remains a wild card. The exact role of the Saudi government and the Crown Prince Mohammed bin Salman is still to be clarified, even though Riyadh has acknowledged that its agents carried out a premeditated killing.
While there are still uncertainties surrounding the outlook for crude oil, it seems the market is choosing to focus on the narrative of increasing supply.
The market structure has shifted from backwardation, where prices for further-dated months are lower than those for prompt delivery, to contango, where prompt prices are lower than those for later delivery.
This is usually a sign that the market is facing over-supply. While the contango is still modest, the risk is that it steepens if investors continue to take the view that there is no shortage of crude.
Certainly, the rise to a 3 1/2-year high in the drilling rig count in the United States last week suggests that more supply is coming on stream.
What the market will now have to assess is how successful the Saudis will be in restraining their own output, and that of their allies.
Having completed a U-turn in the past few weeks, the market may well have to swing its views again in the coming weeks.