Latest OPEC Meeting-Platform Set for Price Retreat

Two years ago, when a global oversupply sent oil prices into a downward spiral, OPEC opted to keep its wells flowing to compete with the rapid growth of USA production. Following a deal, crude oil prices experienced one of the biggest rallies, as traders hoped that a production cut deal would aid crude oil prices and stabilizes global supplies. The country was eager to make up lost revenue after global economic sanctions were lifted in the wake of a landmark nuclear deal.

Under the plan, the cartel will cut production by roughly 1.2 million barrels a day.

While OPEC may have been hibernating, the decision by Saudi Arabia, OPEC’s leading member, to let oil prices crash was always a pragmatic one, not an ideological one.

US oil drillers will be ready to capitalize on stronger oil prices.

Saudi Arabia will cut the most – about 40 percent of the total – which comes to 500,000 bpd.

“In a worst case scenario, the likes of Saudi Arabia may not get as much price uplift as intended should demand underperform, U.S. shale outperform, Libya and Nigeria outperform, or any combination thereof”, he added.

Crude oil prices shot up almost 10 percent in the wake of the agreement and the enthusiasm spilled over into Thursday trading. There is still a degree of scepticism as to how quickly and effectively the theoretical pact will be put into place and market participants will want to begin to see evidence that output is actually falling if oil prices are to move consistently beyond $55.

Iran’s production level was a key sticking point in negotiations. So, countries with high storage capacity and inventories such as Saudi Arabia will still be able to maintain their market share by drawing down existing stockpiles, while for countries like Iraq with less than two weeks worth of oil stocks, a cut “may not be palatable”, said BMI Research.

“Higher oil prices, talk of ultra-long issuance in the USA and strong US data all helped push USA yields higher”, RBC Capital markets said in a note to clients on Thursday.

OPEC may not be controlling the oil market the way it once did, but reports of its death were greatly exaggerated.

North American producers also suffered, reversing the numerous gains they made in shale-oil formations in recent years, resulting in an estimated 200,000 layoffs and dozens of bankruptcies that affected the larger United States economy. “What we have seen however has been real meat on the bone”. It added that the deficit could rise to more than 1 million barrels a day by the second half of next year. Russian Federation is expected to cut 300,000 bpd of that figure.

“Brent was trading at about $50 a barrel after the announcement, and we expect it to trade at an average of $55-$60 per barrel in 2017”. But the growth rate of U.S. shale oil may well determine whether Opec’s decision to cut output maximises its revenue by pushing up price, or whether it just cedes market share to USA suppliers. Japanese energy explorer Inpex ploughed 9.95 percent higher to ¥1,193 and Japan Petroleum rocketed 12.20 percent to ¥2,611 after the OPEC deal was announced.

Much of that production is expected to come from the Permian Basin in Texas, where prices for acquiring oilfield acreage have skyrocketed in recent months.