Oil prices extended gains early on Friday as producer cartel OPEC and Russian Federation agreed to rein in a global oversupply in crude on Wednesday with analysts now focusing their attention on implementation of the deal.
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Brent crude jumped over 9 percent to more than $50 a barrel as Riyadh reached a compromise with Iran after Iraq also agreed to curtail its booming output.
OPEC’s first production cuts in eight years are meant to shrink the world’s bloated oil stockpiles back to a normal level, paving the way for prices to rise to more than $60 a barrel.
And OPEC President Mohammed Bin Saleh Al-Sada said non-OPEC nations are expected to pare an additional 600,000 barrels a day off their production.
OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels, when prices fell to over 10-year lows amid ballooning oversupply.
The cut, representing about 1% of global production (http://blogs.marketwatch.com/thetell/2016/11/30/opec-meets-in-vienna-to-hash-out-oil-deal-live-blog/), will help to reduce a supply glut that has depressed prices for more than two years. He is the architect of Saudi Arabia’s military ambitions and scuttled an oil-production deal with OPEC members in April because Iran didn’t participate.
The OPEC deal “will provide some price momentum but it can not be compared with the cut seen back in 2008”, a Singapore-based trader said, referring to the last OPEC production cut at 4.2 million bpd. Iraq in particular was a question mark, with reports saying that Iraqi officials were still disputing the “secondary sources” data well into the afternoon on Wednesday, even as oil prices were posting huge gains.
“The cut by OPEC will be largely offset by increases in U.S. production where the rig count has already increased”, said India Oil Corp’s Director of Finance A K Sharma.
For them, the OPEC deal is coming at a key moment. Brent crude, the worldwide benchmark, gained 74 cents to $52.58 a barrel in London.
Higher prices, however, are likely to cause more US shale producers to increase production.
The OPEC countries agreed on Wednesday to cut oil output for the first time since 2008.
Meanwhile US bank Morgan Stanley said, “Investor skepticism remains on individual countries’ follow-through (on the cut), which is keeping prices below year-to-date highs (of $53.73 per barrel in October) for now”.
Opec is likely to hold talks with non-Opec producers next week, a delegate said. Yet no oil companies have so far explained how they will implement the cuts, said Chris Weafer, a partner at Macro Advisory in Moscow.
OPEC will hold talks with non-OPEC producers on December 9.
Iran was granted limited concession to allow settle down and recover, after serving years of US -imposed sanctions, including restrictions on its oil production and exports.
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“Opec has suggested the deal is contingent on getting this cut. we don’t yet know if [the deal] could unravel if this doesn’t happen”.
