Oil prices leap after Russia, OPEC agree to cut output

In morning trading, the dollar traded at 61.05 rubles, a level not seen since October 2015, and the euro at 64.54 rubles, also a 17-month high. “Given the cuts in production announced by OPEC, we expect that markets will move into a 0.8 million bpd deficit in 1H17”, said investment management research firm AB Bernstein. Taken together, the OPEC and allied non-OPEC producers account for close to 60 percent of global crude output. Ali Al-Naimi, former Saudi oil minister, said recently that the oil-club members “tend to cheat”.

OPEC Secretary General Mohammed Barkindo said much of the production cuts were expected to come from Russian Federation, which co-chaired Saturday’s meeting. They have achieved a broad-based agreement that promises to cut output by about 2 percent of the world’s daily crude consumption, which is certainly significant.

James Hughes, Chief Market Analyst at GkFX.com noted that: “The agreement puts the issue of a global oil glut to rest, but only for now”.

“Aramco gave full term volume for January”, the source said. The deal will cut production with the aim of boosting prices and making production more profitable.

“We believe that the observation of the OPEC-11 and non-OPEC 11 production cuts is required to sustainably support. oil prices to our 1H17 WTI price forecast of $55 a barrel”, Goldman Sachs said.

Saudi Arabia’s Energy Minister Khalid al-Falih said on Saturday that the kingdom may be willing to cut to below 10.058 million bpd next year, a surprising comment to market experts. Russia’s Energy Minister said the agreement will “accelerate the stabilization in the markets”, implying global supply and demand will be more closely aligned in the months ahead.

But even though this weekend’s deal includes several big exporters, other major producers – such as the USA and Canada – are not involved. “Lower Saudi exports to the USA could also make the export arbitrage uneconomic”.

Oil major BP is shipping nearly 3 million barrels of US crude to Asia, Reuters reported on December 7. However, Bloomberg News calculations based on OPEC data show that across the whole of 2017 there will be little overall reduction in record oil inventories – even if the group convinces non-members to join supply curbs at a meeting on Saturday.

Despite the prospect of United States shale producers continuing to raise their own output levels, analysts believe the oil price has further to climb.