Oil prices hit $57 as OPEC and Russian supply cuts kick in

02 Feb 2017
Financial Nigeria

Summary

The OPEC agenda remains to push up prices that persist at half their mid-2014 level and moderate the supply glut created by U.S. crude oil inventories.

Nigeria's Minister of State for Petroleum Ibe Kachikwu

Brent Crude price rose 50 cents to $57.30 a barrel today, Thursday February 2, while U.S. Light Crude gained 30 cents at $54.18, after it gained $1.07 on Wednesday. The indications are that Organisation of Petroleum Exporting Countries (OPEC) and other exporters, notably Russia, have cut production in compliance to last December’s agreement to reduce supply substantially, by 1.8 million barrels per day (bdp).

The OPEC agenda remains to push up prices that persist at half their mid-2014 level and moderate the supply glut created by U.S. crude oil inventories which rose drastically last week by an unprecedented 6.5 million barrels to 494.76 million barrels, as revealed yesterday by the Energy Information Administration.

However, the U.S. stockpile increase, which far exceeds anticipations pinned at 3.3 million barrels, serves to curb proposed price gains projected by OPEC member states and other exporting countries. A Reuter’s survey of early this week found significant oil producers have jointly achieved 80% compliance to reduce supply by 1.16 million barrels.

The Energy Ministry data revealed today that Russia’s current supply cut is estimated at 100,000 bpd. This is a third of reduced production outputs pledged by Moscow at 300,000 bpd, indicating Russia’s anticipated output reductions would take a gradual process.

As prices become strengthened by signals that member states from OPEC and affiliate exporters are cutting production output, Reuter’s report today reveals inventories in the United States “have been near record highs for much of the past year and domestic production is rising as U.S. companies drill for shale oil.”

“The current sentiment is bullish. We are still firmly within the ranges. I think buyers will shy away if the market jumps another dollar” said Tamas Varga, analyst at London Brokerage PVM Oil Associates.

Christopher Johnson, a Reuter’s London reporter stated today that, “tension between the United States and Tehran is also rising after Iran tested a ballistic missile, raising the possibility of future sanctions that could curb Iranian oil supply.”


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