Oil rises as output cuts trim oversupply
14 Feb 2017 - 22:46
Oil rose yesterday, supported by an Opec-led effort to cut output while rising production elsewhere kept prices within the narrow ranges that have contained them so far this year.
Brent crude was 80 cents higher at $56.39 a barrel by 1425 GMT. US light crude was up 70 cents at $53.63.
The two benchmarks fell 2 percent on Monday. They are both now near the middle of $5-per-barrel trading ranges seen since early December.
“The usually fairly volatile oil price has barely budged for two months, the reason being conflicting dynamics in the market,” said Hans van Cleef (pictured), senior energy economist at ABN AMRO Bank in Amsterdam. The Organization of the Petroleum Exporting Countries and other exporters including Russia have agreed to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017 in a bid to rein in a global fuel supply overhang. But undermining these efforts has been rising production in the United States, where increased drilling activity especially by shale oil producers has lifted overall output to 8.98 million bpd. That is up 6.5 percent since mid-2016 and its highest level since April last year .
“Oil just appears to be caught in a range at the moment and mainly focused on those supply considerations,” said Ric Spooner, chief market analyst at CMC Markets in Sydney.
Although Opec countries are largely sticking to their agreement with compliance around 90 percent, investors suspect the cuts may not be maintained, preventing them from having a bigger impact on prices.
“Opec producers want the market to believe they will stick to the agreed production freeze (cut). But lessons from the past have made the market deeply suspicious,” van Cleef at ABN said. Many analysts say oil producers will have to cut production more quickly to drain the global oversupply this year.
“Based on Opec’s own numbers the message is loud and clear,” said Tamas Varga, analyst at London broker PVM Oil Associates. “Improve on compliance, cut production further and extend the deal for the second half of the year if you want to avoid yet another year of global oil inventory builds.”
ABN has reduced its average Brent price forecast for the first half of 2017 from $55 per barrel to $50 per barrel, “while allowing for a possible temporary dip towards $45 per barrel”.
Global oil consumption will surpass average growth rates for a third year in 2017 amid continued economic expansion in China and India, as per data from the International Energy Agency. With all the attention on Opec, the role of demand in keeping crude prices above $50 a barrel has been overlooked, according to consultants Energy Aspects.