Non-OPEC members agree to cut production to boost prices

Oil prices are continuing to ride high after Saudi Arabia indicated it will cut production by more than previously agreed and more oil producers said they would cooperate to reduce output.

The deal will take effect from the start of 2017 and last for six months, though it may be extended depending on market conditions.

Eleven non-OPEC countries have pledged to reduce their oil output by a combined total of 558,000 barrels per day, voluntarily or through managed decline, starting in January 2017.

Many OPEC members have continued to misrepresent their own production data, for example by categorizing condensate as crude oil, or by exaggerating the productivity of refinery outputs.

Oil in NY and London jumped more than 5 per cent after Saudi Arabia signaled it will cut output by more than was previously agreed amid a weekend deal to tackle oversupply with competitors such as Russian Federation.

Crude prices have been on a tear since OPEC’s production deal on November 30.

So recently, Saudi Arabia and other OPEC countries decided it was time to rein in the global oil glut.

“We just agreed on two additional members in the monitoring committee”.

“The deal speaks volumes about the Saudi commitment to rebalance the market”, said Yasser Elguindi, a veteran OPEC watcher with consultant Medley Global Advisors.

Hedge funds were badly caught out by the production cuts announced by OPEC at the end of last month, triggering a furious rally as managers raced to buy back loss-making short positions.

“That’s why, USA oil production can serve as the stabilizer of oil prices and limit the further upside of recovery”.

USA shale producers are ready to start pumping more the moment prices inch up, and are more than likely to do just that.

“I can tell you with absolute certainty that effective January 1 we’re going to cut and cut substantially, to be below the level that we have committed to on November 30”, Al-Falih said Saturday in Vienna.

So, while prices are up, hopes may soon be down for the 22 nations involved that their deal will result in a return to sustained high prices – and some analysts are hedging their bets. As of 5.05am GMT, WTI crude oil was trading higher by 4.72% at $53.93 (£42.84) a barrel, while Brent crude was trading 4.14% higher at $56.58 a barrel.

In Europe, the FTSE 100 in London hit a one month high before losing ground partly because of weaker gold prices pulling down gold mining stocks.

But will major oil producers, such as Iran that is desperate to expand its oil production and exports to increase its revenue to maintain its economic growth after the decades-long Western sanctions are lifted, benefit by reducing their outputs?

Two years after the world’s biggest exporter backed the Organization of Petroleum Exporting Countries’ switch to a pump-at-will strategy to defend market share, Saudi Arabia’s oil minister promised to bear the biggest burden in curbing global supply.

Opec produces around 40% of the world’s crude so needed non-Opec members to join the cuts to drain current stockpiles.