Oil edges fur­ther above $55 ahead of sup­ply deal

Kuwait Times - - BUSINESS -

Oil edged fur­ther above $55 a bar­rel yesterday, draw­ing sup­port from ex­pec­ta­tions of tighter sup­ply once the first out­put cut deal be­tween OPEC and nonOPEC pro­duc­ers in 15 years takes ef­fect yesterday. Jan 1 is the of­fi­cial start of the deal agreed by the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries and sev­eral non-OPEC pro­duc­ers to lower pro­duc­tion by al­most 1.8 mil­lion bar­rels per day (bpd).

Brent crude was up 17 cents at $55.33 a bar­rel at 1340 GMT. The global bench­mark reached $57.89 on Dec. 12, the high­est since July 2015. US crude gained 30 cents to $53.32. There was no trad­ing on Mon­day af­ter the Christ­mas hol­i­day, and vol­ume was light yesterday. Crude may strug­gle to rally much fur­ther be­fore ev­i­dence is avail­able of OPEC’s com­pli­ance with the cuts, an­a­lysts said. “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,” said Olivier Jakob, oil an­a­lyst at Petro­ma­trix.

“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.” Rus­sian oil pro­ducer Gazprom Neft said yesterday it planned to in­crease oil pro­duc­tion by 4.5-5 per­cent 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 has curbed their out­put have been in­creas­ing pro­duc­tion.

Libyan out­put was 622,000 bpd on Mon­day, up slightly from lev­els recorded be­fore an armed fac­tion agreed to lift a two-year block­ade on ma­jor west­ern pipe­lines on Dec. 14, the Na­tional Oil Cor­po­ra­tion (NOC) said. 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 medi­um­sour crudes,” JBC said. — Reuters

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