Oil prices recover with production cut deal
The Dollar Business Bureau
A day after Organisation of Petroleum Exporting Countries (Opec) and Russia signed a landmark deal to limit the crude oil production, global oil prices surged to a 17-month high, growing as much as 4% to $56.64 per barrel, its highest since mid-July 2015, while West Texas Intermediate, the US benchmark, was up 4.4% at $53.78.
On Saturday, in first such deal between Opec and non-Opec members, oil producers from outside Opec agreed to slash production by 558,000 barrels a day, a decision aimed at bringing an end to the supply glut which has sent oil prices crashing over the last one and half years.
Although the agreed cut in oil production stood below the targeted 600,000 barrels, it still remained the largest ever contribution to output cuts by non-Opec members.
Earlier last month, Opec had agreed to cut oil production by 1.2m barrels a day from January 1, 2017. A number of oil producing countries held another meeting on Saturday to address the common concern. Azerbaijan also said it was willing to discuss cuts.
The oil prices saw further momentum after the Saudi oil minister, Khalid al-Falih, said: “I can tell you with absolute certainty that effective January 1, we’re going to cut and cut substantially to be below the level that we have committed to on November 30.”
A recovery in oil prices showed a growing confidence that a recovery is under way in the energy sector, following more than two years of downturn. Saudi Arabia has a strong economic and fiscal incentive to cut output to achieve normalisation of inventories.
Several analysts said the prices could increase as much as $60, but would probably recede back to $55, as the US oil producers may take advantage of the upturn to increase drilling activity.
