After the OPEC Decision, What’s Adding Uncertainty to Crude Oil?

Brent crude traded at $53.85, losing $1.48 and US West Texas Intermediate (WTI) trading at $50.72 on the worldwide market.

The February contract for West Texas Intermediate (WTI) crude dropped 88 cents, or 1.7%, to $50.91 a barrel.

Petrol prices are expected to rise 5-8 per cent and that of diesel by 6-8 per cent over the next 3-4 months due to a decision by the Organization of Petroleum Exporting Countries (OPEC) to cut crude oil production by 1.2 million barrels per day, according to Crisil Research.

Brent crude oil prices rose above $55 (43.27 pound) a barrel on Monday, trading at a fresh 16-month high, on rising prospects of a tightening market after OPEC members agreed on a landmark deal to cut production last week. That means that even after a reduction, its output would remain higher than it was at the peak of the oil glut in the first half of 2016.

A Reuters survey found that OPEC’s production hit 34.19 million barrels per day in November, up from 33.82 million in October, while Russia’s production hit the highest mark in almost 30 years at 11.21 million barrels per day.

In recent years, OPEC has had a tough time controlling its members and reining in supply.

If OPEC members can deliver some sort of production cut, even one of only 600,000 bpd, it will help bring rebalancing forward, but the process is still likely to be a long and hard one.

Russia’s Energy Minister Alexander Novak will meet oil companies Wednesday ahead of talks with OPEC representatives on December 10, according to people with knowledge of the matter.

Oil prices pared losses slightly after inventory data released late Tuesday from the American Petroleum Institute showed USA crude stocks dropped more than expected last week despite a hefty build of 4 million barrels in Cushing, Oklahoma.

“What’s troubling is that the rise is coming from African producers, two of which are exempt from cutting production”.

Traders said the price falls were due to rising output from within the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation. Opec’s new 32.5 million barrel-a-day production target is only slightly below the group’s estimate for demand for its crude next year, meaning wider cooperation is needed to make a significant dent in the record stockpile surplus that has built up during three years of oversupply.

In November, OPEC produced nearly 1.7 million barrels per day more than its proposed cap.