OPEC agreed to reduce collective output by 1.2 million barrels a day to 32.5 million and Russian Federation pledged a cut of 300,000, prompting predictions of a possible crude rally to$US60 a barrel from Goldman Sachs Group Inc. and Morgan Stanley.
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The Ministry explained that in the agreement where some countries were exempted from the production cut, Nigeria was accommodated due to some of the damage on its oil and gas facilities by militant attacks in recent months. However, even despite the decision to cap their production in order to stabilize and support the worldwide oil market, they do not expect the prices to start rallying this year.
“This is positive news that will make a sustainable difference to the oil market over the coming months”, said Ric Spooner, chief market strategist at CMC Markets adding that it wouldn’t be surprising to see this momentum continue. Its session high was $51.80 a barrel, 13 cents below its 2016 high.Brent crude’s premium to U.S crude widened to the biggest in about ten weeks.
Rebounding oil prices should also drive up demand for loans as drillers are expected restart projects they had put on hold because of the depressed crude prices.
The increased price is welcome, Drangmeister said, but will be most beneficial to the state if it lasts a few months. Key non-Opec countries are expected to reduce production too, by 600,000 barrels per day.
OPEC’s deal will help cut the current global supply surplus of about 300 million barrels, Venezuelan Oil Minister Eulogio del Pino said.
“If no deal is reached, our expectation of rising (crude) inventories through 1H 2017 would warrant prices averaging $45 per barrel through next summer”, Goldman said, noting a move to below $40 per barrel would be hard to sustain.
He continued to say that OPEC “has made a decision to reduce its production by around 1.2 mb/d to bring its ceiling to 32.5 mb/d, effective 1st of January 2017”.
Which countries other than non-OPEC Russia will commit to a cut? “I consider the issues related to reduction of production by non-OPEC countries will be talked at the meeting”. OPEC has agreed to cut production for the first time in years and it’s already had an impact on the price of crude oil across the globe. “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”.
Others noted that the cuts could leave the field open for other producers, especially USA shale drillers. Moreover, they don’t even expect much higher oil prices in 2017.
In reaction to the news, WTI crude oil ended up 9.3 percent at $49.44 a barrel, although it went above the psychological barrier of $50 intra-day.
Yie said the days of US$100 oil is over, but at least limiting supply can help offset some of the price pain.
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OPEC’s first agreement to cut oil production in eight years is set to push up oil prices, but analysts said it will have only a limited overall effect on the Chinese economy given the low proportion of oil in its energy mix.
