11 December, 2016
The Organization of the Petroleum Exporting Countries last week agreed to slash output by around 1.2 million barrels per day beginning in January to reduce global oversupply and prop up oil prices.
There was selling interest above $51.00 p/b in January WTI futures with consolidation just above $50.50 into the United States open with as February Brent futures traded just above $53.50.
The U.S. Energy Information Administration EIA said crude inventories fell 2.4 million barrels during the week ended December 2, which was more than the 1 million-barrel draw analysts had forecast in a Reuters poll. Brent crude was up 50 cents at $53.50 a barrel by 5.30pm.
That means OPEC and Russian Federation alone produced enough to cover nearly half of global oil demand, which is just above 95 million barrels of crude oil every day.
Russia, which is not an OPEC member, has signalled it was ready to cut production by 300,000 bpd and on Thursday Azerbaijan said it would come to Vienna armed with proposals for its own reduction.
Given the rally to $50 a barrel, non-OPEC members may not be persuaded to cut output, said Tim Evans, energy futures specialist at Citigroup.
Oil slipped from a 16-month high as doubts emerge about how Opec will implement the first supply curbs in eight years. However, this move sent the prices of Brent oil to Dollars 54.56 a barrel, the biggest weekly gain since 2009.
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The deal is also good news for dairy and tillage farmers as a sustained lift in oil prices is traditionally mirrored by stronger grain and dairy commodity markets.
The agreement hinges on the cooperation of major non-OPEC producers, who must also cut their production by a combined 600,000 barrels a day.
Many shale oil producers have suffered as prices fell below their production break-even levels and so may hope to boost output following the recent price rise.
On the apprehension of a rise in gas prices due to oil output cuts, IGU Secretary General David Carroll said that while the majority of world gas trade is still linked to crude prices, this percentage was declining towards a "decoupling" of the price linkage. Non-OPEC nations consider the re-balancing of the global oil market to be in progress, they said.
Last month, the oil output from OPEC countries increased to 34.19 million barrels per day (mbpd) from 33.82mpbd in October.
A Wall Street Journal survey of major banks predicts that Brent crude oil prices will average $56 per barrel in 2017 and that U.S. crude oil prices will average $54 per barrel in 2017.