Oil Up as OPEC Affirms Output Cut Plan
22 February 2017 - 4:23AM
Dow Jones News
By Jenny W. Hsu
U.S. oil prices stayed at a 19-month high in Asia Wednesday
after oil leaders affirmed that the supply cut effort by
heavyweights producers was making headway.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in April traded at $54.54 a barrel at 0323 GMT, up
$0.21 in the Globex electronic session. April Brent crude on
London's ICE Futures exchange rose $0.25 to $56.91 a barrel.
Oil prices rose 1% overnight after OPEC Secretary-general
Mohammad Barkindo said compliance rate among cartel members who
agreed to participate in the production cutback deal is expected to
increase above the current 90%.
OPEC nations plus 11 other non-cartel players, including Russia,
late last year agreed to cut combined production by 1.8 million
barrels. If fully implemented, the plan would erase around 2% of
the world's daily supply and reset the supply into a rebalance, and
possibly a deficit by the end of the year.
The pact took effect in January and will be reviewed in May.
Signatories will deliberate whether or not to extend the cuts
beyond the original six-month time frame based on the reduction in
inventories, analysts say.
The agreement is intended to revive oil prices which were
battered for over two years due to a persistent supply overhang in
the market. Many oil dollar-dependent nations, such as Venezuela,
are still grappling with the effects of the price collapse.
Even cash-rich countries like Saudi Arabia are eager to boost
oil prices as it plans to privatize its state-own oil company Saudi
Aramco. "The stakes are even higher for Saudi Arabia as not only do
they need cash but they are readying the market for the listing of
state oil giant Saudi Aramco, an IPO expected at around a minimum
of $2 trillion," said Stuart Ive, a client manager at OM
Financial.
The Wall Street Journal reported that the kingdom is looking to
list its company in New York. The IPO could occur around 2019.
However, OPEC's plan to trim down supply is facing threats on
multiple fronts. OPEC members, who were exempt from the cut plan
are steadily ramping up their output. In January, Libya and Nigeria
increased their daily production by 65,000 and 101,800 barrels,
while Iran added 50,200 barrels.
"Moreover, we note that Iranian oil officials are talking about
increasing production further..In our view this chance of increased
Iranian output raises the possibility that overall OPEC compliance
weakens over the next few months rather than improves," said Tim
Evans, a Citi Futures analyst.
Growing production from the U.S., is also seen as a potential
disruptor. Crude production in the U.S. has risen around 3.4% since
mid-November. In the same time period, U.S. oil prices have climbed
around 20%, underlining shale producers' assertiveness to
capitalize on the higher prices resulting from cuts made by other
producers.
"A rebound in U.S. shale production could also replace barrels
missing from OPEC suppliers. After a two-year downturn,
shale-watchers have expressed astonishment at the pace of activity
just a handful of weeks into 2017," said analysts at S&P Global
Platts.
U.S. drillers added eight oil rigs in the week to Feb. 10,
bringing the total to 591, the most since October 2015, according
to U.S. driller Baker Hughes.
Nymex reformulated gasoline blendstock for March--the benchmark
gasoline contract--rose 131 points to $1.5071 a gallon, while March
diesel traded at $1.6499, 74 points higher.
ICE gasoil for March changed hands at $499.00 a metric ton, down
$2.75 from Tuesday's settlement.
Benoit Faucon contributed to this article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
February 21, 2017 23:08 ET (04:08 GMT)
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