Oil Price Hits $55pb As Output Cut Deadline Draws Near: Report

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Vienna, Austria (Leadership) – The Organisation of Petroleum Exporting Countries (OPEC) has set January 1, 2017 as the official start-off date for a deal to cut crude oil output by the Organisation and several non-OPEC producers by almost 1.8 million barrels per day (bpd). In the wake of the cut-off deal, the oil price edged further above $55 a barrel yesterday . . .

Experts say the move is an indication that there will be tighter supply once the first output cut deal between OPEC and non-OPEC producers in 15 years takes effect on Sunday.

Brent crude, LCOc1, gained 54 cents to close at $55.70 a barrel yesterday. The global benchmark reached $57.89 on December 12, the highest since July 2015. US crude, CLc1, went up by 63 cents to close at $53.65.

Sources told Reuters that the members of an OPEC and non-OPEC committee formed to monitor the market may meet on January 13, 2017.

Oil rallied further after news of the meeting, which may give an early indication of compliance with the deal.

Olivier Jakob, oil analyst at Petromatrix told Reuters that ‘‘from January, we’ll start to have a better idea about the level of OPEC production. That is going to be more and more of a focus,” adding that prices will struggle to rally much further.

“To go above $60 is going to be difficult. We’re already close to the top rather than the bottom of the range right now,” he said.

There was no trading on Monday after the Christmas holiday, and volume was light yesterday.

Russian oil producer Gazprom Neft (SIBN.MM)  yesterday said it planned to increase oil production by 4.5-5 per cent next year, less than it had intended before Russia joined the supply cut deal.

Major OPEC members such as Saudi Arabia and Iraq have informed customers of lower supplies. But Libya and Nigeria – which are exempt from reductions because conflict had curbed their output – have been increasing production.

While the outright price of crude is being supported by the prospect of lower supplies, the impact in the physical market will probably differ according to the type of crude.

Price differentials for lighter crudes could weaken once the supply cut comes into force as producers are expected to trim back output of their heavier grades, analysts at JBC Energy said in a report.

“Going into 2017, we expect that the premiums for light, sweet grades may be increasingly pressured as a result of the joint OPEC and non-OPEC output cut agreement, which is supposed to reduce primarily the availability of medium-sour crudes,” JBC said.

© 2016 Madjack Business Report

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Oil Price Hits $55pb As Output Cut Deadline Draws Near: Report