Oil steadies after Opec decision prompts big weekly rally

Oil prices steadied at around $53.50 a barrel on Friday after the biggest weekly rally since 2009 following Opec’s (Organisation of the Petroleum Exporting Countries) decision this week to cut crude output in order to rein in a global glut.

The market focus now shifts to the implementation and impact of Opec’s first production agreement since 2008, which will be joined by non-Opec producers, after data showed output in Russia rose in November to a post-Soviet high. 

Front-month Brent crude futures were down 45 cents, or 0.8 per cent by 0951 GMT from their last settlement at $53.49 per barrel. The contract was up more than 13 per cent this week, its biggest gain since March 2009. US West Texas Intermediate (WTI) futures were at $50.68, down 38 cents. The Opec, which accounts for a third of global oil supply, will reduce production starting in January by 1.2 million barrels per day, or over 3 per cent, to 32.5 million bpd. Russia also agreed to cut output by 300,000 bpd. Russia and other non-Opec producer are set to meet with Opec on December 9.

“The lack of firm output commitments from some non-Opec producers may not be a major course of concern, but the threat posed by non-compliance and the potential for US shale operators to spoil the party should not be ignored,” brokerage PVM Oil Associates said.

“Pockets of unease are already apparent and following the knee-jerk reaction that has produced unsustainable double-digit percentage price gains, signs are that the Opec-induced euphoria is fading this morning with both crude benchmarks opening on a softer note,” PVM added.

Russia said on Friday that its output in November rose slightly to 11.21 million barrels per day, a post-Soviet high.

As part of the Opec deal, Russia has promised to gradually cut its crude output by up to 300,000 barrels per day in the first half of 2017.

With cuts only being implemented next year against end-2016 levels, analysts said there was still a possibility that oversupply, which has halved oil prices since 2014, remains in place next year.

“Let us put Opec’s decision into perspective — oil has just risen above $50 per barrel. Five months ago it was at similar levels, as indeed it was one month ago,” said analysts at AB Bernstein on Friday.

“More important is the sentiment — does this mean oil will now rise sustainably above $60 and start its long-awaited rebalancing? It is possible, but far from certain,” the AB analysts added.