Oil prices soar on global producer deal to cut crude output
SINGAPORE: Oil prices shot to their highest levels since mid-2015 yesterday after Opec and other producers reached their first deal since 2001 to jointly reduce output in order to rein in oversupply and prop up markets.
Brent crude, the international benchmark for oil prices, soared to US$57.89 per barrel in overnight trading between Sunday and Monday, the highest level since July 2015.
US West Texas Intermediate (WTI) crude also hit a July 2015 high of US$54.51 a barrel.
Brent and WTI eased to US$56.83 and US$54.20 respectively by 0751 GMT, but were both still up over 4% from their last settlements.
With the deal signed after almost a year of arguing within the Organisation of the Petroleum Exporting Countries and mistrust in the willingness of non-Opec Russia to participate, focus is switching to compliance of the agreement.
“We believe that the observation of the Opec-11 and non-Opec 11 production cuts is required to sustainably support... oil prices to our 1H17 WTI price forecast of US$55 a barrel,” Goldman Sachs said.
“This forecast reflects an effective 1.0 million barrels per day (bpd) cut vs the 1.6 million bpd announced cut and greater compliance to the announced cuts is therefore an upside risk to our forecasts.” Goldman Sachs forecast full compliance would be worth an extra US$6 per barrel to its price forecast.
AB Bernstein said the agreed deal “amounts to an aggregate supply cut of 1.76 million barrels per day (bpd) from 24 countries which currently produce 52.6 million bpd, or 54% of world oil supply.” Bernstein said that “some of the non-Opec supply cuts will come from natural decline, but most will come from self-imposed cuts.” Saudi Aramco has told US and European customers it will reduce oil deliveries from January. “The kingdom is targeting excess inventories, the lion’s share of which sit in the US,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore. “Lower Saudi exports to the US could also make the export arbitrage uneconomic.”