… As OPEC cuts production by 1.2mn barrels daily
By Sebastine Obasi with Agency Report
Respite appears to be on the way for Organisation of Petroleum Exporting Countries, OPEC, members as oil price yesterday rose by more than 8 percent to a five-week high following the decision to cut production by 1.2 million barrels per day. Crude prices, however, are unlikely to skyrocket in reaction to the deal, but will instead take measured steps higher, traders and analysts said.
The Organisation of the Petroleum Exporting Countries, OPEC, agreed to cut production to 32.5 million barrels per day, Kuwait’s oil minister said. The cuts include Iraq reducing output by 200,000 bpd to 4.351 million bpd beginning in January. The country had previously resisted cuts, providing a hurdle to an agreement.
The cut was at the low end of production of a preliminary agreement struck in Algiers in September, and reduces production from a current 33.64 million bpd. Non-OPEC member, Russia, has agreed to cut output by 300,000 bpd. OPEC will meet with non-OPEC producers on December. 9. U.S. West Texas Intermediate crude futures for January delivery rose $3.93 to $49.16 a barrel, a 8.7 percent gain. The move was the largest one-day gain since February.
Brent crude futures for January delivery rose $3.73 to $50.11 a barrel, a 8.0 percent gain. That contract expires Wednesday. Brent futures for February rose 8.8 percent, or $4.16 to $51.48 a barrel.
“It’s going to take time to see whose going to abide by those rules,” said Oliver Sloup, director of managed futures at IITrader.com. In the past, not all producers have complied with agreements on supply cuts, Sloup said. As a result, there is skepticism about how closely the production caps will be adhered to. Kuwait, Venezuela and Algeria have agreed to monitor compliance with the OPEC agreement.
Speaking on the sidelines, Nigeria’s Minister of State for Petroleum Resources, Dr. Ibe Kachikwu said OPEC members are “largely convergent” on the need for a production cut.
He said: “It is difficult to predict oil prices these days because there is a lot of uncertainties but we will expect that quite frankly if we reach some resolution on this issue it will take oil price above the mid- 50s ranges and potentially upward, if we don’t obviously we will have negative impact on prices as they are today, currently about $48pb.
“OPEC can only do what it can and I think it is making a lot of efforts to try and find a resolution on this matter. I need to always caution that the reality is OPEC is only 30 percent producers, if you are talking about credibility we need to be asking the 70 percent producers where their credibility is”.
He added that “OPEC is making a lot of efforts in this and it is taking us even extra efforts to convince and get others on board, the likes of Russia, US and the rest. I think in terms of credibility, they (OPEC) have shown in last few meetings that they are focused on this.
“They have agreed to a freeze and do a cut and now they are trying to crunch the numbers”.