The Hindu Business Line

Oil rises on signs of producers’ compliance with output cuts

All Russian companies have agreed to lower output; markets anticipate higher prices

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Oil rose on Friday, edging closer to new 17-month highs as producers showed signs of adhering to a global deal to reduce output.

Brent crude futures were trading at $54.55 per barrel at 1225 GMT, up 53 cents on the previous day’s close.

US West Texas Intermedia­te (WTI) crude was up 33 cents at $51.23 per barrel.

“The market has faith in the OPEC deal and should trade higher in the near future,” said Tamas Varga, lead oil analyst at London brokerage PVM Oil Associates. The Organizati­on of the Petroleum Exporting Countries has agreed to reduce output by 1.2 million barrels per day (bpd) from January 1, its first such deal since 2008.

Russia and other non-OPEC producers plan to cut about half as much.

Those deals, clinched over the past two weeks, have boosted expectatio­ns in the market that a two-year supply overhang will clear soon and prices remain near highs last seen in July 2015.

Russia said on Friday that all of the country’s oil companies, including top producer Rosneft, had agreed to reduce output.

Other oil producers, including Kuwait and Saudi Arabia, have notified customers that they will cut from January.

The prospect of lower production led US bank Goldman Sachs to raise its WTI price forecast to $57.5 per barrel from $55 previously for the second quarter of 2017.

For Brent, Goldman expects prices between $55 and $60 per barrel after the first half of 2017.

However, there are doubts about the willingnes­s of other OPEC members to comply.

Iraq, OPEC’s second-biggest producer after Saudi Arabia, has signed new deals that will increase its sales to Asian customers such as China and India despite its commitment to reduce output by 210,000 bpd.

Libya, which is allowed to ramp up production as part of the OPEC deal, is close to increasing output crimped by unrest after a group of oil guards said they had reopened a longblocka­ded pipeline linking some of the country’s biggest oilfields.

Libya’s National Oil Corp has said it hopes to raise production to 900,000 barrels per day in the near future, and to 1.1 million bpd next year.

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