A worker at a petrol station fills a car’s tank.
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Energy stocks led most markets higher on Thursday after OPEC nations reached a preliminary deal to cut oil production for the first time in eight years.
“In essence the 700,000 barrel per day cut is a minute amount compared with total production, but it marks a turnaround by Saudi Arabia to preserve OPEC”, Barratt added.
He added that Russian Federation intends to keep its oil production at current levels, while reiterating that Moscow would like to see prices climb to between 50 and 60 dollars a barrel. Prices spiked more than five per cent on the news.
The Indonesian government expects oil prices to stay in a range of US$50 to $60 per barrel next year, which would be within in the state budget assumption and in accordance with OPEC’s data of declining production in 2016. The agreement caused global oil prices to rise briefly by almost 6% as an immediate response.
U.S. crude, was down 58 cents at $47.25, after closing up 78 cents and having touched a one-month high of $48.32 in the previous session.
Manoon Siriwan, an energy analyst, said the rise in the price of West Texas Intermediate would be reflected in higher Singapore oil futures prices.
“They are saying, ‘We can’t grow and we can’t fund our economies at $40 and $50 oil,”‘ Richard, based in Oklahoma City, said in a telephone interview. Producers are starting their fall meetings to plan spending and strategy for 2017 and “a more constructive view of prices would certainly be helpful”, he said. The oil industry faced deep cuts in investment and massive layoffs, leading to a potential risk that oil supply may not meet demand in the future, with a detrimental effect on security of supply.
The fact that OPEC and Saudi Arabia (its largest producer) in particular are now talking about cuts means that they have been victims of their own free-market strategy to gain market share and can no longer tolerate lower prices.
But higher crude prices may lead to a rapid reversal in USA crude output as shale producers have shown they can boost pumping fairly rapidly. Analysts estimate the global crude oversupply at between 1.0-1.5 million bpd.
Even if it is enacted and global production stabilises, it will still be very high.
Crude oil edged higher Friday as optimism about a tentative agreement to cut production among members of the Organization of the Petroleum Exporting Countries outweighed doubts about the deal. “If Nigeria and Libya increase their production, the cut will be a little less than what’s now on the cards”, Poulsen said.
But analysts said economic pressure from falling oil revenues pushed Opec members to reach a deal, while others warned the oil cartel has a poor track record of fulfilling such commitments, and traders are not sure if Saudi-Iran cooperation would hold.
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Mid-stream businesses such as the petrochemical sector are likely to stay intact as it is a “cost-push” segment whose profit depends a lot on the spread margin, said analysts.
