Oil price jumps to 16 month high after deal to cut production
Oil stocks climbed after Opec nations, which collectively produce more than one-third of the world’s oil, agreed to trim production for the first time in eight years.
(Adds details, quotes, background) MOSCOW, Dec 1 (Reuters) – Russia plans to cut its oil output from November-December levels as a part of its agreement to stabilise global oil market together with OPEC, Energy Minister Alexander Novak told reporters on Thursday.
Members of the Organization of Petroleum Exporting Countries concluded meetings in Vienna with an agreement to cut production by 1.2 million barrels per day to align with a proposal put forward in Algeria. Energy companies led gains in European equity markets.
Rating agency Fitch, after lauding OPEC’s decision to cut oil production by 1.2 million bpd, cautioned that prices are unlikely to move much higher than they are now, expecting them to “flatline” next year. The pact also calls for an additional 600,000 barrels per day reduction from non-OPEC suppliers. After hailing the accord, analysts highlighted the need for producers to comply with their pledges.
The deal, created to drain record global oil inventories, overcame disagreements between the group’s three largest producers – Saudi Arabia, Iran and Iraq – and ended a flirtation with free markets that started in 2014. “Stockpiles were starting to come down and this will speed that up”. Its session high was $51.80 a barrel, 13 cents below its 2016 high.Brent crude’s premium to U.S crude widened to the biggest in about ten weeks. Futures touched $US54.36, the the highest level since July 30, 2015. WTI for January delivery was at $50.02, up 58 cents, on the New York Mercantile Exchange.
The second front-month Brent crude futures contract, now March 2017, traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth around 39 billion dollars and easily beating a previous record of just over 600,000 reached in September.
The development also triggered frenzied trading, with Brent futures trading volumes for February and March, when the supply cut will start to be visible in the market, hitting record volumes.
“I call it a peace budget rather than a war budget, as much of the military expenses will go down with the liberating of Mosul this year, ending major battles”, he said. “It is likely that this will run on for a little while longer but how the markets price in the unexpected oil inflation is something we are yet to see”.
Oil prices surged today to $50 per barrel, after OPEC and Russian Federation reached what the oil producing cartel described as “a historic agreement” in Vienna. A compromise took shape: Iran would be allowed to increase output from current levels, while holding back from reaching its earlier targets.
The statement noted that member countries at the meeting agreed on the deal where considerations of the cartel offered to Iran, Libya and Nigeria would mean that in 2017, total production might likely increase in these countries, even as other members seek to cut output in the first quarter of next year.
“Just freezing the production will take two years to restore an equilibrium”, he said.
But they’re already rising this month. State finances are more sensitive to higher prices than to lower production, they said. “A cartel requires internal cooperation among entities and some control over production or price”, he said.
“This was an extremely bullish production decision”, Jason Schenker, president of Prestige Economics, wrote in a report that oil could rise to $60 a barrel soon. Stockpiles fell by 884,000 barrels to 488.1 million barrels.