Brent crude oil LCOc1 was down 90 cents a barrel at $47.34 by 1218 GMT (7:18 a.m. ET). Yesterday, according to Reuters, Brent crude was at its highest in 16 months.
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The Organisation of the Petroleum Exporting Countries (Opec) agreement to cut production by 1.2 million barrels per day (bpd) from January next year, has helped push oil prices to nearly 10 per cent higher in overnight trade. The booming shale production in the United States also contributes to the market rout.
Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels.
Because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.
Sal Guatieri, senior economist at BMO Capital Markets, said modestly higher oil prices will actually help the USA economy by spurring investment in the energy industry without draining consumers’ purchasing power.
The head of the International Energy Agency Fatih Birol warned of greater volatility after the OPEC deal.
“If oil prices traded in the range of $50-$60, shale isn’t likely to return in massive levels, however if prices spiked above $60 then the shales industry will return as a major player to rebalance prices”, said Sayed in the note to clients.
USA crude production has already risen by more than 3 percent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment. “The OPEC decision is bullish for first half of 2017 and bearish for the second half because higher prices will bring back US oil faster to the market”. Saudi Arabia is going to cut production from 10,6 million bpd to 10,06 million bpd. The number of active USA drilling rigs bottomed out at 404 in May and has been rising since, to just below 600 last week.
The impact on CNOOC is believed to be the greatest among the three, with the recovery of oil prices improving CNOOC’s revenue and operating income, she said.
Gas prices had been on a downward trend in the U.S. Regular was 6 cents cheaper on Thursday than a month ago and 10 cents cheaper than in early October.
“OPEC made a very serious and very credible cut”. “For the time being, oil prices have received a huge support”.
Jason Gammel of US investment bank Jefferies said, “OPEC has deliver an agreement”.
But if OPEC successfully throttles back on production and hikes prices, that could induce some fracking companies in Texas or North Dakota to start drilling again. Oversupply and a sluggish world economy were among the factors that drove the prices down. The market is too nimble and too global for OPEC to manipulate for long.
The organisation culminated its 171st Ministerial Conference in Vienna on Wednesday, confirming that it would slash oil output by 1.2 million barrels per day as of January 1st 2017.
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Non-OPEC producer Russian Federation confirmed on Tuesday it would not attend the OPEC gathering, but added that a meeting between the group and non-affiliated producers at a later stage was possible.
