The price of Brent Crude, the international oil benchmark, has risen above $57 for the first time since July 2015 after Opec won the support of countries outside its cartel for its planned supply cuts.
Russia, alongside 10 other countries including Mexico, Oman and Azerbaijan agreed to reduce their production by 558,000 barrels a day on Saturday.
The agreement, coming on top of Opec’s earlier promise to curb output by more than 1m barrels a day, has helped Brent to climb a further 5 per cent on Monday morning, to $57.06 per barrel.
The international benchmark has now rallied more than 22 per cent in the last three weeks.
WTI, the US benchmark, is also up 5.2 per cent this morning to $54.21 per barrel, its highest level since October 2015.
Oil-rich OPEC and non-OPEC countries struck a historic deal on Saturday for the latter to reduce oil output by around 600,000 barrels per day in the wake of the November 30 OPEC Vienna agreement to cut production by 1.2 million barrels per day. The summary cut amounts to some 1.8 million barrels per day in the first half of 2017. The deal finalized a preliminary agreement reached in Algeria in September.
“I want to state with full certainty that we will significantly reduce output, starting in January, in order to ensure an output level below what we agreed to on November 30,” Al-Falih said after the deal was closed. The minister added that Saudi Arabia had already informed its clients of the plans to cut output.
A group of 13 countries from outside OPEC agreed to cut output by 562,000 barrels per day. That’s just shy of the rumoured 600K barrels from earlier on Saturday but still represents a major win for OPEC and oil bulls; at least if the promises are kept.
Mexico, Kazakhstan, Oman and Russia were all part of the group. The cut adds to the pledged 1.2 mbpd reduction in OPEC quotas announced last week.
Skeptics say that many in the group were facing natural productions declines as fields dry up. Compliance will be critical and there are tremendous levels of distrust in the group.
The other countries who have joined in are:
Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan.
US EIA weekly oil inventory data report week ending 2 December 2016
Cushing 3783k vs 256k exp. Prior 2419k
Gasoline 3425k vs 1600k exp. Prior 2097k
Distillates 2501k vs 2000k exp. Prior 4957k
Refinery utilisation 0.6% vs 1.0% exp. Prior -1.0%
Production 8.697m vs 8.699m prior
A bigger draw than expected here but not as unexpected after the ‘Oil report that shall not be named’ also showed a bigger draw. Production was pretty flat. There’s still the whiff of the OPEC deal floating around but once that’s all done and dusted, we’ll likely get back to seeing the market move more in this report.
OPEC’s first production cuts in eight years will be a mixed bag for Asia, with the region’s few oil exporters celebrating and just about everyone else fretting.
The planned cuts are particularly worrying for Southeast Asian economies losing steam as China’s growth slows. India also has cause for concern. The country saw its gross domestic product rise 7.4% on the year in July-September, faster than the 7.1% in the previous quarter, but the government’s surprise demonetization of 500- and 1,000-rupee banknotes is expected to affect the economy well into next year.
Official oil stock data comes out from the US on Wednesday morning. This is a private survey.
Wires reporting a larger than expected draw in crude oil stocks for the week just gone.
more to come. Oil price up a few cents after the data.
Oh, and as a ps. This is from S&P Global Platts Oil Futures Editor Geoffrey Craig and might be interesting. You may have seen it already, but if not (in brief):
Crude oil stocks expected to draw 1.7 million barrels
U.S. crude oil inventories top 488 million barrels (37 million barrels greater than levels at the beginning of 2016)
The return of refiners from autumn maintenance will likely help eat away at this surplus, as inventories tend to decline at this time of year with crude demand picking up.
Analysts see plenty of upside still for crude demand until the next round of seasonal repairs begins (typically in January)
A key question facing the market is whether the winter turnaround will coincide with a rebound in U.S. crude oil production, a scenario that would fly in the face of the OPEC production cut and put upward pressure on U.S. inventories.