 "An offshore oil platform at the Bouri Oil Field off the coast of Libya")
Oil prices rose nearly 3 per cent on Thursday, extending their rally on optimism over Opec’s first output cut plan in eight years, despite some analysts’ doubts that the reduction would be enough to rebalance a heavily over-supplied market.
The Organization of the Petroleum Exporting Countries agreed on Wednesday to cut output to 32.5-33.0 million barrels per day (bpd) from around 33.5 million bpd, estimated by Reuters to be the output level in August.
“Opec made an exceptional decision today ... After two and a half years, Opec reached consensus to manage the market,” said Iranian Oil Minister Bijan Zanganeh, who had repeatedly clashed with Saudi Arabia during previous meetings.
He and other ministers said the Organization of the Petroleum Exporting Countries would reduce output to a range of 32.5-33.0 million barrels per day. Opec estimates its current output at 33.24 million bpd.
“We have decided to decrease the production around 700,000 bpd,” Zanganeh said.
The move would effectively re-establish Opec production ceilings abandoned a year ago.
Prices rose 6 per cent on Wednesday, feeding general risk appetite and boosting energy shares. The European oil and gas index was up 4 per cent on Thursday and the pan-European STOXX 600 index rose 2 per cent. But oil prices retreated as scepticism over the effectiveness of the deal led to profit taking. Benchmark Brent crude futures were down 33 cents a barrel at $48.42 by 1038 GMT, after earlier climbing to a high of $49.09, its strongest since September 9. Brent settled up $2.72 a barrel, or 5.9 percent, on Wednesday.
US light crude oil was down 17 cents at $46.88 a barrel, after first hitting $47.47, its highest since September 8. Many analysts said there was a lack of clarity over too many details and there was a risk the deal could unravel. “With such uncertainty around the minutiae, we expect uncommon volatility in the oil market until Opec’s November meeting,” analysts at ING said.
How much each country will produce is to be decided at the next formal Opec meeting in November, when an invitation to join cuts could also be extended to non-Opec countries such as Russia.
It is not clear when the agreement would come into effect, how compliance with the agreement will be verified, what new quotas for countries would be and how long the deal would remain in effect, analysts said. reuters
And a cut in OPEC production might do little to reduce oversupply, given uncertainty about output from Iran, Libya and Nigeria.
“The problem of surpluses will not be solved if these countries take full advantage of their capacities,” Commerzbank chief commodities analyst Eugen Weinberg said.
Moreover, if oil prices were to rise, it could also lead to a surge in non-OPEC output.
U.S. bank Goldman Sachs expects the OPEC deal to add $7-$10 to oil prices in the first half of 2017.
“We think that OPEC is running a dangerous game if the aim is to push the crude oil price higher from here in the short term as it would just activate more U.S. shale oil production,” said Bjarne Schieldrop, chief commodity analyst at Nordic bank SEB.
CONSENSUS REACHED
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Opec would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its current output at 33.24 million bpd
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The move would effectively re-establish Opec production ceilings abandoned a year ago
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How much each country will produce will be decided in Opec’s next formal meeting in November, when an invitation to join cuts could also be extended to non-Opec countries such as Russia
- Goldman Sachs expects the Opec deal to add $7-$10 to oil prices in the first half of 2017
