OPEC deal could push oil to $80 per barrel

13 December, 2018, 06:25 | Author: Corey Lynch
  • OPEC deal could push oil to $80 per barrel – analyst tells RT

"OPEC+, the group consisting of the Organisation of Petroleum Exporting Countries (OPEC) and a group of oil producing countries outside OPEC (so-called non-OPEC), including Russian Federation, today agreed to cut production by 1.2mb/d with effect from January".

Oil prices jumped about 5 per cent to more than US$63 a barrel as the combined cut of 1.2 million bpd was larger than the minimum 1 million bpd that the market had expected.

OPEC is going through a transitional phase, as non-OPEC producers, with Russian Federation in the forefront, are now exerting more influence on the oil market.

OPEC and key partners opted for a middle path coming out of the 175th meeting of the OPEC Conference, agreeing to cut oil production by 1.2 million barrels per day (bbl/d) from October levels (an even steeper cut than versus November levels).

Petroleum exports until recently were dominated by products like gasoline and diesel, but that has changed since the US shale revolution that has sped up drilling and extraction of oil, helping boost overall USA production to a record 11.7 million bpd.

Since shortly after the end of World War II, the USA has imported more petroleum products than it exported. Implied volatility for second-month West Texas Intermediate futures hit a 2016-high late last month before slowly creeping lower.

REUTERS  Stringer
REUTERS Stringer

The Trump administration has supported that transition by opening new public land to drilling and loosening restrictions on public and private oil and gas production, with "energy independence" as a frequent talking point. There has also been fears that the deal between OPEC countries could increase the resonance of US President Donald Trump, who appealed not to cut crude production and keep prices low. The remaining 12 countries will have to cut their production by 2.5 percent compared to October, or 800,000 barrels a day.

He added: "The fact that the OPEC-Russia alliance is still holding matters as much as the details of the deal itself. For most nations, self-interest ultimately prevails", she said. The key objective of the meeting was to negotiate production cuts in order to boost global crude prices that have seen a dramatic drop of almost 30 percent over recent months. Madan Sabnavis, chief economist at Care Ratings, said that while OPEC's production cuts will definitely lead to a rise in oil prices, the extent will depend on the combination of demand from non-US consumers, especially China, inventories and domestic demand in the USA, given the onset of winter, and supply from non-OPEC nations.

On 11 November, Saudi Arabia, the biggest oil producer in OPEC, announced that it would reduce its daily oil output by 500,000 barrels per day.

Saudi Energy Minister Khalid al-Falih said he was not confident a deal could be reached.

Rebuffing Wednesday's tweets by Trump, Novak said the group's members make decisions based on the market situation, the balance between oil supply and demand and available reserves. From an initial target of 1.3-1.5m bpd output cut, the final deal was for 1.2m bpd only.

"Although we don't think that the current pricing differentials between Canadian barrels and USA barrels will be permanent, we are obligated to our shareholders to protect our business and our balance sheet until Canadian prices improve", said Cardinal in a news release. The three countries are the world's largest producers of oil.


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