Oil edges above $55 ahead of supply cut deal
27 Dec 2016 - 20:39
London: Oil edged further above $55 a barrel yesterday, drawing support from expectations of tighter supply once the first output cut deal between Opec and non-Opec producers in 15 years takes effect on Sunday.
January 1 is the official start of the deal agreed by the Organization of Petroleum Exporting Countries and several non-Opec producers to lower production by almost 1.8 million barrels per day (b/d).
Brent crude was up 17 cents at $55.33 a barrel at 1340 GMT. The global benchmark reached $57.89 on December 12, the highest since July 2015. US crude gained 30 cents to $53.32.
There was no trading on Monday after the Christmas holiday, and volume was light yesterday. Crude may struggle to rally much further before evidence is available of Opec’s compliance with the cuts, analysts said. “To go above $60 is going to be difficult. We’re already close to the top rather than the bottom of the range right now,” said Olivier Jakob, oil analyst at Petromatrix.
“From January, we’ll start to have a better idea about the level of Opec production. That is going to be more and more of a focus.” Russian oil producer Gazprom Neft said yesterday it planned to increase oil production by 4.5-5 percent next year, less than it had intended before Russia joined the supply cut deal. Major Opec members such as Saudi Arabia and Iraq have informed customers of lower supplies. But Libya and Nigeria - which are exempt from reductions because conflict has curbed their output - have been increasing production.
Libyan output was 622,000 b/d on Monday, up slightly from levels recorded before an armed faction agreed to lift a two-year blockade on western pipelines on December 14, the National Oil Corporation said.
While the outright price of crude is being supported by the prospect of lower supplies, impact in physical market will probably differ according to type of crude.