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Oil prices surge 10% after OPEC agrees to cut output for first time since 2008

Oil prices remain at less than half their mid-2014 levels, when the global glut started

Reuters 

An oil refinery
An oil refinery

shot up over 10 percent after producer club and cut a deal to reduce output to drain a global supply glut, but analysts warned prices could recede this month, while other producers stand ready to fill the gap in the longer term.

The Organization of the Petroleum Exporting Countries (OPEC)agreed on Wednesday its first output reduction since 2008 after de-facto leader accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-member in 15 years.

"has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-countries could significantly add to what has been announced by OPEC."

Following the announcements, the price for Brent crude futures, the international benchmark for prices, shot up over 10 percent. By 0224 GMT, it stood at $51.88 per barrel.

Yet as markets re-opened in Asia on Thursday, some doubts over the cut began to emerge.

"This is an agreement to cap production levels, not export levels," British bank Barclays said. "The outcome is consistent with... what production levels were expected to be in 2017 irrespective of the deal reached."

Because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.

"Supply in December will increase while demand is expected to decline. This makes the foundations of a strong price advance unstable, if not dangerous," commodities brokerage Marex Spectron said.

Despite the jump in prices after the deal, they are still only at September-October levels - when plans for a cut were first announced.

prices remain at less than half their mid-2014 levels, when the global glut started, and Goldman Sachs said in a note following the agreement that it expected prices to average just $55 per barrel in the first half of next year.

produces a third of global oil, or around 33.6 million bpd, and under Wednesday's deal it would reduce output by around 1.2 million bpd from January 2017. That would take its output to January 2016 levels, when prices fell to over 10-year lows amid ballooning supply.

Analysts also said that the and cuts would leave the field open for other producers, especially U.S. shale drillers, to fill the gap.

"We do not believe that prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

U.S. crude production has already risen by more than 3 percent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment.

U.S. West Texas Intermediate (WTI) crude futures were trading at $49.48 per barrel at 0224 GMT.

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Oil prices surge 10% after OPEC agrees to cut output for first time since 2008

Oil prices remain at less than half their mid-2014 levels, when the global glut started

The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd)
shot up over 10 percent after producer club and cut a deal to reduce output to drain a global supply glut, but analysts warned prices could recede this month, while other producers stand ready to fill the gap in the longer term.

The Organization of the Petroleum Exporting Countries (OPEC)agreed on Wednesday its first output reduction since 2008 after de-facto leader accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-member in 15 years.

"has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-countries could significantly add to what has been announced by OPEC."

Following the announcements, the price for Brent crude futures, the international benchmark for prices, shot up over 10 percent. By 0224 GMT, it stood at $51.88 per barrel.

Yet as markets re-opened in Asia on Thursday, some doubts over the cut began to emerge.

"This is an agreement to cap production levels, not export levels," British bank Barclays said. "The outcome is consistent with... what production levels were expected to be in 2017 irrespective of the deal reached."

Because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.

"Supply in December will increase while demand is expected to decline. This makes the foundations of a strong price advance unstable, if not dangerous," commodities brokerage Marex Spectron said.

Despite the jump in prices after the deal, they are still only at September-October levels - when plans for a cut were first announced.

prices remain at less than half their mid-2014 levels, when the global glut started, and Goldman Sachs said in a note following the agreement that it expected prices to average just $55 per barrel in the first half of next year.

produces a third of global oil, or around 33.6 million bpd, and under Wednesday's deal it would reduce output by around 1.2 million bpd from January 2017. That would take its output to January 2016 levels, when prices fell to over 10-year lows amid ballooning supply.

Analysts also said that the and cuts would leave the field open for other producers, especially U.S. shale drillers, to fill the gap.

"We do not believe that prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

U.S. crude production has already risen by more than 3 percent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment.

U.S. West Texas Intermediate (WTI) crude futures were trading at $49.48 per barrel at 0224 GMT.

image
Business Standard
177 22

Oil prices surge 10% after OPEC agrees to cut output for first time since 2008

Oil prices remain at less than half their mid-2014 levels, when the global glut started

shot up over 10 percent after producer club and cut a deal to reduce output to drain a global supply glut, but analysts warned prices could recede this month, while other producers stand ready to fill the gap in the longer term.

The Organization of the Petroleum Exporting Countries (OPEC)agreed on Wednesday its first output reduction since 2008 after de-facto leader accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-member in 15 years.

"has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-countries could significantly add to what has been announced by OPEC."

Following the announcements, the price for Brent crude futures, the international benchmark for prices, shot up over 10 percent. By 0224 GMT, it stood at $51.88 per barrel.

Yet as markets re-opened in Asia on Thursday, some doubts over the cut began to emerge.

"This is an agreement to cap production levels, not export levels," British bank Barclays said. "The outcome is consistent with... what production levels were expected to be in 2017 irrespective of the deal reached."

Because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.

"Supply in December will increase while demand is expected to decline. This makes the foundations of a strong price advance unstable, if not dangerous," commodities brokerage Marex Spectron said.

Despite the jump in prices after the deal, they are still only at September-October levels - when plans for a cut were first announced.

prices remain at less than half their mid-2014 levels, when the global glut started, and Goldman Sachs said in a note following the agreement that it expected prices to average just $55 per barrel in the first half of next year.

produces a third of global oil, or around 33.6 million bpd, and under Wednesday's deal it would reduce output by around 1.2 million bpd from January 2017. That would take its output to January 2016 levels, when prices fell to over 10-year lows amid ballooning supply.

Analysts also said that the and cuts would leave the field open for other producers, especially U.S. shale drillers, to fill the gap.

"We do not believe that prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

U.S. crude production has already risen by more than 3 percent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment.

U.S. West Texas Intermediate (WTI) crude futures were trading at $49.48 per barrel at 0224 GMT.

image
Business Standard
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