Oil steadies on doubts output cut

OPEC is holding talks on December 10 in Vienna in an effort to secure as much as 600,000 barrels a day in production cuts from non-members, to complement the organization’s own 1.2 million-barrel reduction. US light crude was down 47 cents, or 0.9%, at $50.46 USA a barrel. This makes compliance to the deal a key requirement for sustaining the higher level of oil prices.

US West Texas Intermediate crude rose early in the day and began to pare gains in the late afternoon, settling at $51.79 a barrel, up 11 cents or 0.21 per cent, before retreating to as low as $51.11 a barrel.

“Momentum continues to wane in crude with mixed EIA crude inventories data and shale producers hedging via futures”, said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed Wednesday and is trading about 15 percent above the five-year average. The contract hit its highest since July 2015 at $55.33 on Monday.

The 29 analysts and economists polled by Reuters forecast Brent crude futures will average $44.69 a barrel in 2016 and $57.01 in 2017, against $44.78 and $57.08 for the same periods in the previous survey about a month ago.

A Crisil report said the price of petrol may rise 5-8 per cent and that of diesel by 6-8 per cent over the next 3-4 months following the production cut and the resultant spike in crude prices.

Oil rebounded from the week’s lows to close above $50 a barrel on Thursday, on growing optimism that non-OPEC producers might agree to cut output following a cartel agreement to limit production.

Fatih Birol, the executive director of the International Energy Agency, expects oil’s fundamentals to regain balance soon, thanks to the output cut deal agreed by OPEC last week.

Mazroui said the oil market needs prices that provide an incentive to invest in production.

OPEC last week agreed to slash production by 1.2 million bpd in the first half of 2017.

However, doubts have since emerged whether the planned cuts will be big enough to end oversupply. Russian Federation announced it would cooperate and lower production by 300,000 barrels per day, and there is some chance other nations representing about 20% of global production will also join in following an upcoming meeting.

The other invited countries are Bahrain, Colombia, Congo, Egypt, Trinidad and Tobago, Turkmenistan, Azerbaijan and Brunei.

– US crude inventories probably dropped by 1.5 million barrels last week, according to the median estimate in a Bloomberg survey before EIA data.