Opec ministers see oil market balanced if non-Opec joins in cut

Global oil prices have surged to almost $55 per barrel, following an agreement by the Organization of Petroleum Exporting Countries (OPEC) to cut production.

NYMEX crude for January delivery CLc1 was up 17 cents at $51.01 a barrel by 0039 GMT, after closing up $1.07 on Thursday.

Globally, oversupply of crude is estimated at around 1.4-1.7 million barrel per day at present.

Brent for February settlement traded at $53.95 a barrel 1:03 p.m. Singapore time.

Crude oil prices surged significantly after OPEC members agreed to slash their production by 1.2 million barrels a day to 32.5 million barrels a day, but oil prices came under pressure after a fresh record in OPEC production despite a production cut deal.

US energy companies, after struggling with low oil prices for two years, are expected to ramp up drilling activity in the oil patch again.

As per the November 30 agreement, Saudi Arabia has undertaken to reduce its output by nearly half a million bpd from “reference levels”, with Iraq agreeing to cut 210,000 barrels per day the UAE 139,000 bpd, Kuwait 131,000 bpd, and Venezuela 95,000 bpd. Russian Federation has said it will reduce output by around 300,000bpd.

United States crude fell $1.36, or 2.6%, to $50.43 a barrel.

This means the Opec production cut would balance out demand and supply in the second half of 2017.

Still, a strong US dollar sapped some of the price strength, and both benchmarks remained roughly 2 percent below the highs reached just after the Organization of the Petroleum Exporting Countries announced plans to cut production late last month, and were on track to close the week with small losses.

Venezuelan Oil Minister Eulogio Del Pino told Russia’s TASS news agency in Caracas that the oil market would rebalance within six to nine months and that Opec aimed for moderate prices within a range of $60-70 a barrel.

“As I wait for the oil price balloon to burst, the rally in oil prices will lead to higher gasoline prices in much of the country over the next weeks”, GasBuddy senior petroleum analyst Patrick DeHaan said.

“Most of the position adjustments that the OPEC decision forced upon traders have now run their course and it leaves the market exposed to profit taking”, said Ole Hansen, head of commodities strategy at Saxo Bank, citing surveys pointing to record production from OPEC during November.

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, dropped about 36 percent since the OPEC agreement.

In fact, USA producers have emerged stronger and leaner, allowing them to pump at prices that were once too low.