London: Oil rose yesterday, edging closer to new 17-month highs as producers showed signs of adhering to a global deal to reduce output.
Brent crude futures were trading at $54.91 per barrel at 1500 GMT, up 89 cents on the previous day’s close.
US West Texas Intermediate (WTI) crude was up 66 cents at $51.56 per barrel. “The market has faith in the Opec deal and should trade higher in the near future,” said Tamas Varga, lead oil analyst at London brokerage PVM Oil Associates.
The Organization of the Petroleum Exporting Countries has agreed to reduce output by 1.2 million barrels per day (b/d) from January 1, its first such deal since 2008. Russia and other non-Opec producers plan to cut about half as much. Those deals, clinched over the past two weeks, have boosted expectations in the market that a two-year supply overhang will clear soon and prices remain near highs last seen in July 2015.
Russia said yesterday that all of the country’s oil companies, including top producer Rosneft, had agreed to reduce output. Other oil producers, including Kuwait and Saudi Arabia, have notified customers that they will cut from January.
Saudi Aramco has told Asian refiners it will suspend a supply flexibility clause - known as operational/lifting tolerance - from January until further notice, sources told Reuters.
The prospect of lower production led US bank Goldman Sachs to raise its WTI price forecast to $57.5 per barrel from $55 per barrel previously for the second quarter of 2017.
For Brent, Goldman expects prices between $55 and $60 per barrel after the first half of 2017. However, there are doubts about the willingness of other Opec members to comply.
Iraq, Opec’s second-biggest producer after Saudi Arabia, has signed new deals that will increase its sales to Asian customers such as China and India despite its commitment to reduce output by 210,000 b/d. Libya, which is allowed to ramp up production as part of the Opec deal, is close to increasing output crimped by unrest after a group of oil guards said they had reopened a long-blockaded pipeline linking some of the country’s biggest oilfields. “This could see approximately 400,000 additional barrels of oil per day reaching the market. Libya is exempted from Opec’s agreed production cuts. However, the other countries will thus need to reduce their output even more,” Commerzbank analysts said.
