KUALA LUMPUR: The Organisation of the Petroleum Exporting Countries (Opec) agreement to cut production by 1.2 million barrels per day (bpd) from January next year, has helped push oil prices to almost 10 per cent higher in overnight trade.
Following the announcement after the cartel met in Vienna yesterday, the price for Brent Crude futures – the international benchmark for oil prices – jumped to over US$51 per barrel from US$46 per barrel the previous day before settling around US$49.90 per barrel this morning.
International brokerage services provider FXTM research analyst Lukman Otunuga said the surprising Opec production cut deal eased some concerns over the excessive oversupply in the market.
“This market defying cut will be the first in eight years, a critical move which has ensured Opec maintains some credibility,” he said in a statement yesterday.
He said with the production cut, Opec’s new ceiling would be set at 32.5 million bpd.
Furthermore, he said the deal highlights Saudi Arabia, Iran and Iraq’s tolerance in the most critical of moments, to set aside their differences and propel oil prices further.
Meanwhile, Public Investment Bank Bhd in a research note said apart from the Opec cut, non-member countries especially Russia, are also expected to reduce their production to drive prices higher.
The investment bank said according to Russian Energy Minister Alexander Novak, the country would gradually cut output in the first half of 2017 by up to 300,000 bpd.
It said other key non-Opec producers, including Azerbaijan and Kazakhstan, also planned to reduce production to about 600,000 bpd.
“The combined reduction of 1.8 million bpd by Opec and non-members, represents almost two per cent of global output and would help the market clear a stock overhang, which has sent prices crashing from levels as high as US$115 a barrel seen in mid-2014,” it added.
On the breakdown of the Opec output cut, Public Investment Bank said Saudi Arabia would lead the way in cutting almost 500,000 bpd, followed by Iraq (210,000 bpd), United Arab Emirates (139,000 bpd) and Kuwait (131,000 bpd).
Libya and Nigeria are exempted from the deal following the disruption of the countries oil production facilities, while Indonesia’s membership was suspended due to the country status as a net oil importer.
The investment bank has retained a “neutral” view on the sector pending the implementation of the cuts.
However, it is optimistic that the oil market could stage a fundamental rebound, albeit on a more gradual basis, with a supply crunch ahead expected as soon as end 2017. — Bernama