Oil falls on production cut skepticism

In addition, non-OPEC Russia pledged to reduce production by as much as 300,000 barrels a day.

This is the first time since the financial crisis in 2008 that Opec countries came together to slash output to stabilise oil prices.

The U.S. Energy Department’s Short-Term Energy Outlook projects trucking’s main fuel will average $2.70 per gallon next year, which would be a 16.6% increase over 2016’s projected average price of $2.31 per gallon.

At a meeting in Vienna last week, the Organization of Petroleum Exporting Countries chose to reduce its production by 1.2 million barrels a day, beginning January 1. Brent crude, the Global benchmark of prices, dropped 1% to $54.40.

The suspension could be a setback for Indonesia, OPEC’s only East Asian member, which had hoped to benefit from being closer to OPEC countries when it reactivated its membership at the start of the year.

Market watchers had said OPEC’s decision to cut output marked an about-face for Saudi Arabia, which has been battling to keep market share for the past two years by selling more, if cheaper, barrels rather than bolstering prices.

The group will meet non-OPEC producers, led by Russian Federation, in Vienna this weekend and seek their contribution to erode a global supply glut that could run into a third year in 2017.

Both Brent and USA benchmarks rallied after comments by the former secretary general of the Organization of the Petroleum Exporting Countries supportive of non-member production cuts. As a result, prices are expected to rise to an average of $55/b in 2017 from an $45/b in 2016, in line with our previous forecast.

While Russia has said it would curb output, it remains to be seen whether it’ll actually follow through with its plans.

Additionally, with the financial situation of the United States oil and gas industry improving compared with last year, Crisil expects production ramp-ups to be faster next year, which, in turn, would act as a natural check on crude prices.

Member nations of OPEC who rely on crude oil exports to fund their governments have been rocked by lower oil prices over the last few years. All these are factors will affect oil prices in 2017.

“We will discuss the terms and conditions of a production freeze or cut with other countries”.

Saudi Arabia and Iraq plan to supply full contracted volumes of crude to Asia in January, in an effort to retain market share in Asia, but Saudi Arabia ordered supply cuts to US and European buyers.