Iraq commits to OPEC cuts, sends oil prices higher

Dec 29, 2016, 00:32
Iraq commits to OPEC cuts, sends oil prices higher

With the January 1 implementation of the Organization of the Petroleum Exporting Countries' (OPEC) oil cutback plan only days away, sources in Libya and Nigeria, which are exempt from the deal, report rising output - in Libya's case, to 622,000 barrels per day (bpd). Global benchmark Brent crude was up to $55 a barrel, while West Texas Intermediate for February delivery was trading at around $53 a barrel on Tuesday morning.

OPEC and several major non-OPEC producers led by Russian Federation agreed to reduce output by almost 1.8 million barrels per day.

Iraqi Oil Minister Jabar Ali al-Luaibi said on Wednesday his country, which has seen fast production growth in the past two years, would cut supply by 200,000-210,000 bpd from January.

Meanwhile, Russia has promised to cut its output by 300,000 barrels a day.

"We may see some reduction in output as production is ramped down toward the lower targets, although others could also be take the opportunity to push a few more barrels into the market at the most attractive price", said Tim Evans, a Citi Futures analyst.

Given the Christmas holiday, the oil market was closed on Monday. They are of the view that the prices will fall next year and may not even reach the $60 mark.

Brent crude futures ended up 13 cents at $56.22 a barrel. The deal, if carried out as planned, should reduce global supply by about 2%. If it goes over that, it will spark a major surge in USA shale drilling. "There's a strong possibility that we're going to rally into the end of the year".

"Given current levels, USA crude inventories will nearly certainly end 2016 higher than they began the year", S&P Global Platts said, noting that the last calendar year to record a deficit was 2013. Today's national average price for a gallon of gasoline is $2.29, 29 cents more than the average price on New Year's Day in 2016 ($2.00).

While the landmark deal is set to come into force officially starting from January 1, 2017, a dominating tendency of the market is now a wait-and-see approach. Futures have gained 51 percent this year.

Venezuela came in as third top supplier, accounting for 10 per cent of total USA crude imports, with higher volumes from a month earlier of 63 tbpd, or six per cent.

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