OPEC to slash production as Saudi shoulders majority of burden

The agreement rests heavily on Saudi Arabia – the world’s biggest oil producer – which has agreed to slash about 4.5% or its output, or 500,000 barrels per day.

Iran is to cut about 90,000 barrels from its daily reference output of 3.975 million barrels; Algeria, 50,000 BPD from 1.089 barrels; Angola, 80,000 barrels from 1.753 million barrels; Ecuador, 26,000 barrels from 548,000 barrels; Gabon, 9,000 barrels from 202,000 barrels and Iraq, 210,000 barrels from 4.561 million barrels. “Will Russia cut 300,000?” he said. Both the price of Brent crude and the West Texas Intermediate crude dipped by 2.9% and 3.9% to $46.38 and $45.23, respectively during the standoff. This is the ultimate fake news market – it’s even more lucrative than the political one, where voters’ reactions aren’t as predictably knee-jerk.

Looking further ahead, DeHaan voiced doubts that OPEC will be able to adhere to its promised cutbacks and that implies prices for oil won’t climb for very long.

“The lack of firm output commitments from some non-OPEC producers may not be a major cause of concern, but the threat posed by non-compliance and the potential for US shale operators to spoil the party should not be ignored”, brokerage PVM Oil Associates said. Pierre Andurand of Andurand Capital, a hedge fund, says the OPEC agreement could push oil above $60 a barrel within weeks. As Bloomberg’s Liam Denning calculated, by the end of the third quarter of 2017, OPEC members’ full compliance with Wednesday’s deal can cut developed nations’ stock of crude to 56 days of forward demand from the current 65 days. The betting was that failure would push prices well below $40 a barrel, and possibly bring about the collapse of OPEC. It added that the deficit could rise to more than 1 million barrels a day by the second half of next year. That’s down from the 33.6 million barrels a day the group pumped in October.

An agreement by Opec members to cut the oil supply by 1.2 million barrels per day between them saw oil prices rise dramatically early this morning – and United Kingdom motorists are due to bear the brunt of this to the tune of £5 per tank for the average sized family vehicle. Under this week’s follow-up agreement, the first between OPEC and Russian Federation since 2001, specific cuts for individual states were set, with nearly all OPEC members agreeing to cut from October levels. The country had previously pushed for special consideration, citing the urgency of its offensive against Islamic State.

This step taken by the 14-member group to curb the supply glut will be positive for Global prices.

The group will meet again on May 25 next year, at which point it intends to extend the cuts by another six months, Qatari Energy Minister Mohammed Al Sada told reporters in Vienna.

As a final note, for what it’s worth, the late oil watcher Robert Mabro once quipped that OPEC should change its logo to a tea bag “because it only works when in hot water”.

Stronger prompt prices have also narrowed oil contango market structures, potentially prompting the release of oil from storage that could add to supplies, traders said.

The deal also included OPEC’s first coordinated action in 15 years with non-member Russian Federation.

If the current price doesn’t stick, Russian Federation and the OPEC countries simply won’t make the promised cuts.

Oil prices resumed their rise Thursday and held above the $50 barrier following OPEC’s decision to carry out its first output cut in eight years. Above $52, there are chances of oil rallying to $60 but that would encourage U.S. shale-oil producers to pump more.