Oil prices rise on US crude stock decline, weaker dollar

Russia, which is meeting with some of the players a day in advance, has already agreed to a cut of 300,000 barrels a day to hlep in the effort to ease the glut and support prices.

Prices for prompt Brent and WTI benchmark futures contracts have hit their highest in almost a year and a half, but this rush by the shale industry to hedge has capped the rally in prices of oil for delivery further in the future. That scenario would leave largely unchanged the 300 million-barrel global stockpile surplus Del Pino and his colleagues are targeting.

OPEC is seeking to secure 600,000 barrels per day of cuts from non-OPEC producers, and Russian Federation has committed to temporarily cut production by about 300,000 barrels per day. Next, already OPEC’s oil output hit a new record high to 34.19 million bpd in November before the scheduled production cut.

Brent for February settlement climbed 89 cents, or 1.7 percent, to $53.89 a barrel on the London-based ICE Futures Europe exchange. That’s not enough to make a profit after leasing a giant oil tanker for half a year at a cost equivalent of $3.15 to $3.38 per barrel, according to data from a shipbroker and charterer.

Assuming OPEC will stick to its promise could be wishful thinking.

Saudi Oil Minister Khalid al-Falih, who takes the helm as OPEC president in 2017, will have to lead by example.

However, producers outside OPEC so far have fallen short of pledging such a large cut in production.

On the eve of the meeting with non-OPEC nations, the market is shifting into a wait-and-see mode as OPEC and U.S. production levels will be monitored closely in the coming months, Anthony Headrick, energy market analyst at CHS Hedging LLC, told Trend Dec.9.

OPEC’s free-market policy – which allowed crude prices to crater for two years – has created or worsened a host of problems in oil producing nations: budget deficits, recession, inflation and terms of trade shocks. Considering the current quantity which is planned to be reduced, the total output will now stand at 32.5 million barrels per day.

“Talk about OPEC compliance worries is a bit of a red herring”.

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. In public comments, Azerbaijan has indicated it will lower supply, while Kazakhstan has said it is undecided.

Oil prices recovered above $50 a barrel on Thursday, bouncing back from the week’s lows as the dollar weakened against major currencies. However, Nysveen expects to see natural declines from most of these countries because their production was “extremely strong” in the second half of this year.

Brandon Elliott, executive vice president of corporate development and strategy for USA shale producer Northern Oil & Gas, said his company had added to its hedges.

“Continuing global supply growth in 2017 may postpone significant global inventory withdrawals until 2018”, it said.