OPEC

Eleven more oil producing nations have agreed to cut their production to try to boost global crude oil prices. The deal follows an announcement by OPEC 11 days ago that its members would collectively cut production by just over 1 million barrels a day.

Large oil exporters, including Russia and Mexico, said they would mimic the Opec protocol agreed at the end of November and adjust their own production to 300,000 and 100,000 barrels a day respectively from the start of 2017. Oil prices have languished at less than or around $50 a barrel since the US became largely self-sufficient on shale from 2014 onwards; but with Opec’s announcement that production would be cut on 30 November, prices recently surged more than 15 per cent, rising last week briefly above $55.

An agreement between oil producer club OPEC and Russia to produce less to drain a global glut sent prices soaring in record trading volumes on Thursday, even as analysts warned other producers will likely top up supply.

On Wednesday in Vienna, the Organization of the Petroleum Exporting Countries reached a deal to reduce their oil production by 1.2 million barrels per day in order to raise global prices.

The deal also hinges on non-OPEC countries contributing an additional 600,000 barrels per day worth of cuts, with about half of that coming from Russia. On Thursday Azerbaijan said it was also willing to engage in talks on cuts.

Some time ago this Newsletter predicted an oil price of US $50 per barrel in the short term (see Newsletter 92 of 22.01.2015) and possibly prices later ranging from $60 to $65. American shale oil producers can now make profits at $50 to $55 a barrel in the Eagle Ford Basin and a bit more in the Bakken fields while those in the Permian Basin can do well at $30 a barrel. The prediction of an oil price at about $50 has thus proven to be quite accurate so far. Regarding the future for oil prices, a cap of $60 to $65 seems to be fairly safe as a prediction. The Americans will increase production as soon as the price reaches $55 a barrel or even before that.

The oil trend is still fluctuating. According to Claudio Descalzi, Eni CEO, although the cost per barrel suffers decided fluctuations, the price remains in continuous ascent: "It grow up by 33-34 dollars per barrel and reached 50 and this is combined with the fact that the offer, then the production, was down compared with the demand. "

Crude-oil futures on Monday posted their best close in more than a year as bullish comments from Russian President Vladimir Putin and Saudi Arabia’s energy minister set off a surge in prices amid a meeting of major oil producers in Istanbul to try to cement a cap on oil production.

Oil prices fell on Monday over doubts that an OPEC-led plan to cut output would rein in a global oversupply that has dogged markets for over two years. They are nearly double their lowest level this year in January, with benchmark North Sea Brent futures ending last week at about US$52 per barrel.

West Texas Intermediate (WTI) for November delivery rose 1.22% to $50.44 a barrel.

Brent crude oil prices remained above $50 a barrel today, supported by last OPEC agreement but under pressure due to controversial views about deal.

Brent crude futures were trading at $50.25 per barrel, up 6 cents from the last close while WTI crude were down 8 cents at $48.16 a barrel on October 3.

The Organisation of the Petroleum Exporting Countries (OPEC) said last week that it would cut output to between 32.5 million barrels per day (bpd) and 33 million bpd from about 33.5 million bpd.

Russia has no plan to change its current level of oil output, said Russian Energy Minister Alexander Novak, albeit he applauds OPEC oil cartel’s agreement to curb production.

"Russia will carefully consider those proposals which will be eventually drawn up. … But our position is keeping the volume of production at the level that has been reached. These are the main principles that were earlier being considered,” said Novak. The comments came after OPEC reached a preliminary deal Wednesday on the sidelines of the International Energy Forum to cut current production to 32.5 – 33.0 million barrel per day (bpd), for the first time since 2008.