Oil futures turned lower Tuesday, selling off after hitting an 18-month high on optimism that the crude-production cuts agreed to late past year will help to drain global stockpiles.
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Venezuela – one of the staunchest supporters and promoters of OPEC’s oil production cuts – has said it would start reducing supply by 95,000 bpd beginning January 1, complying with its commitment to the total cartel cuts.
In its first deal since 2008, OPEC agreed in November to cut oil output by 1.2 million barrels per day (bpd) to 32.5 million barrels starting from January 1. Iraqi Oil Minister Jabbar al-Luaibi said his country was committed to cutting output by 200,000 to 210,000 barrels a day from the beginning of next month, Kuwait’s state-run news agency KUNA reported. WTI fell 95 cents, or 1.8%, to $52.77 per barrel.
Brent crude was trading at $58.03 per barrel about an hour after Tuesday’s opening bell, up from a previous close of $56.82 per barrel and well-above the year-ago level.
The UAE and Iraq, other key Gulf Opec members, have previously indicated to customers that they will receive less crude oil over the next few months.
Speculations about an agreement between OPEC and non-OPEC members triggered the price rally beginning in early 2016 and, with a deal finally reached on December 11 in Vienna, futures rose at unprecedented levels, with some analysts predicting oil might reach $60per barrel in 2017.
Crude oil ended 2016 with strong gains. Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the USA last week, the ninth straight weekly rise and a level not seen in nearly a year.
High oil import bill will therefore mean that the country will have to fight a higher Current Account Deficit.
Crude oil futures plunged from their highest since 2015 Tuesday, amid doubts about whether OPEC production cuts will re-balance the oil markets.
“First signals suggest the.production cuts are raising hopes that the global oil oversupply will diminish”, said Hans van Cleef, senior energy economist at ABN AMRO Bank N.V.in Amsterdam.
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He added, “You get until January 21 to believe your hoped-for outcomes, and then you converge with reality; historically, OPEC always blows past its targets”. We should also have more spare production capacity around the globe that should reduce panic spikes due to weather and geopolitical events.
