EMEA News
Oil Spikes to 18 Month High on OPEC Deal Comments from Riyadh, Kuwait and Oman
North Sea Brent crude futures on Tuesday rose by over 2 percent to an 18 month high of $58.11 per barrel, on the strength of Saudi Arabia, Kuwait, and Oman reaffirming their vow to abide by the output reductions specified under the recently ratified Organization of the Petroleum Exporting Countries (OPEC) agreement.
However, by day's end, sizeable doubts in the U.S. about the deal being honoured – along with the strong U.S. dollar - caused futures to slip on the first trading day of 2017: West Texas Intermediate fell $1.39 to $52.33 a barrel, the biggest decline since December 14.
Brent also fell, by $1.35 to $55.47.
The strong North Sea showing followed a statement issued Tuesday by King Salmon, chair of the Saudi Arabian cabinet, which confirmed "the importance of stability, coordination, more cooperation, and commitment ... to apply the agreement on reducing production reached in November last year."
Concurrently, Jamal Jaafar, chief executive of the Kuwait Oil Company, told local media that his state firm has already complied with its commitment to reduce output by 130,000 barrels per day (bpd) to about 2.75 million bpd; also, Ali Abdullah Al Riyami, the director general of oil and gas marketing in the oil ministry of Oman, said on local television that his non-member country has cut its agreed-to amount of 45,000 bpd from a previous daily output of 1 million barrels.
While the strong dollar is largely being blamed for taking the lustre off the oil rally in the U.S., John Kilduff, founding partner of Again Capital, told Bloomberg that "Too much faith has been put in OPEC and the other countries that have promised cuts: they have been increasing output the last few months, so the cuts will be like New Year’s crash diet, and we know how those end."
To which Gene McGillian, manager of market research for Tradition Energy, added, "The market set new highs but that failed to be followed by sustained buying.
"This has been the recent pattern; it shows that there’s a lot of nervousness about whether these guys will follow through with their cuts and how fast U.S. and Canadian production picks up."
Even experts eyeing the North Sea Brent gains urged people not to be overly optimistic of how events will play out in the near future: Bjarne Schieldrop, chief commodities analyst at SEB, said, "The crude oil market is heading into 2017 on a very bullish note, with net long non-commercial WTI positions at a record high; [but] with record net long speculative WTI positions and US shale oil rigs on a strongly rising path, there is clearly a risk for price set backs ahead.”
While this month will reveal if everyone will honour the OPEC deal to cut production by a total of 1.8 million bpd, Tom Kloza, global head of energy analysis at Oil Price Information Service, last week suggested that 70 percent compliance is more likely and that this could result in a total cut as little as 700,000 bpd, because the cartel "plays some games with the numbers."
