Brent crude oil prices surge to nearly $52 per bbl after Opec agrees output cut - Firstpost
Firstpost

Brent crude oil prices surge to nearly $52 per bbl after Opec agrees output cut

#crude oil   #OPEC   #Opec output cut   #Saudi Arabia  


Oil shot up over 10 percent after producer club Opec and Russia cut a deal to reduce output to drain a global supply glut, but analysts warned prices could recede as other producers stand ready to fill the gap.

The Organization of the Petroleum Exporting Countries (Opec)agreed on Wednesday its first oil output reduction since 2008 after de-facto leader Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-Opec member Russia in 15 years.

"Opec has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-Opec countries could significantly add to what has been announced by Opec."

Reuters

Reuters

Following the announcements, the price for Brent crude futures, the international benchmark for oil prices, shot up over 10 percent from below $50 on Wednesday to $51.92 per barrel at 0256 GMT.

Yet as markets re-opened in Asia on Thursday, some doubts over the cut began to emerge.

"This is an agreement to cap production levels, not export levels," British bank Barclays said. "The outcome is consistent with... what Opec production levels were expected to be in 2017 irrespective of the deal reached."

Meanwhile U.S. 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."

For shipbroker E A Gibson, "Much of the cutbacks could be a reflection of lower seasonal domestic demand amongst crude producers, and thus have a limited impact on seaborne exports."

Also, because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.

"Supply in December will increase while demand is expected to decline. This makes the foundations of a strong price advance unstable, if not dangerous," commodities brokerage Marex Spectron said.

Despite the jump in prices after the deal, they are still only at September-October levels - when plans for a cut were first announced.

Oil prices remain at less than half their mid-2014 levels, when the global glut started, and Goldman Sachs said in a note following the agreement that it expected oil prices to average just $55 per barrel in the first half of next year.

Opec produces a third of global oil, or around 33.6 million bpd, and under Wednesday's deal it would reduce output by around 1.2 million bpd from January 2017. That would take its output to January 2016 levels, when prices fell to over 10-year lows amid ballooning supply.

Analysts also said that the Opec and Russia cuts would leave the field open for other producers, especially U.S. shale drillers, to fill the gap.

"We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

U.S. crude production has already risen by more than 3 percent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment.

U.S. West Texas Intermediate (WTI) crude futures were trading at $49.54 per barrel at 0256 GMT.

First Published On : Dec 1, 2016 10:51 IST

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