OPEC pledge to cut oil output is being met with skepticism

Marco Green
December 13, 2018

Oil rose to about $61 a barrel on Wednesday, supported by an industry report showing a drop in US crude inventories, a cut in Libyan exports and an OPEC-led deal to trim output.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $51.40 per barrel, up 25 cents or, 0.49 percent.

International Brent crude oil futures LCOc1 were at $60.46 per barrel at 0213 GMT, up 31 cents, or 0.52 percent, from their last close.

OPEC and 10 allies led by Russian Federation agreed on Friday to a six-month, 1.2 million barrels per day production cut from October production levels, starting January 2019, with OPEC shouldering 800,000 bpd of that.

"OPEC is no longer the 30 million barrel (per day) group".

Other analysts noted the reduction by the Organization of the Petroleum Exporting Countries and allies, like Russian Federation, may not be deep enough to restore balance to the market especially after the US government confirmed its forecast that the United States would end this year as the new top producing nation.

Combined output losses from Iran and Venezuela could reach 900,000 barrels a day during the second quarter of next year, more than double the 800,000 barrels OPEC plans to remove from world markets, the IEA said on Thursday. OPEC is slated to curb production by 800,000 barrels a day, while Russian Federation and nine allied producers will shoulder the remainder of the cuts.

Crude remains in a bear market after reaching a four-year high in early October as investors worry about a glut.

"At this point, the OPEC+ cuts appear to have merely put a floor under prices", Societe Generale analyst Michael Wittner said in a note. It basically says that the OPEC communique last week was rather vague as OPEC is said to not publish individual oil output targets.

For its part, the Energy Information Administration on Wednesday showed domestic crude supplies declined for a second week in a row, by 1.2 million barrels for the week ended December 7.

Global demand, meanwhile, was kept unchanged at 100.08 million bpd for 2019, an expected growth of 1.29 million bpd from 2018's level. Analysts estimated crude stocks declined 3 million barrels last week, according to a Reuters poll.

The EIA on Thursday reported that domestic supplies of natural gas fell by 77 billion cubic feet for the week ended December 7, almost matching the average forecast from analysts polled by S&P Global Platts for a decline of 79 billion.

Other reports by Click Lancashire

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