The stronger dollar hit commodity prices, but oil traders wondering about the strength of the November 30 OPEC production cap agreement will now have to confront news that some major non-OPEC producers will join the deal.
And don’t be surprised if prices go for a run this week in the wake of the weekend announcement – $US55 a barrel for Brent and US crude futures is not out of the question, even if the Fed lifts its key interest rate.
Oil futures finished higher Friday for a second consecutive session with some of the world’s biggest crude producers meeting at the weekend to fine-tune that November 30 agreement to curb production.
However oil prices logged a modest loss over the week as doubts of full cooperation with the pact lingered. That is likely to reverse this week with news of the agreement on Saturday.
In New York West Texas Intermediate crude oil for January delivery added 66 cents, or 1.3%, to settle at $US51.50 a barrel. For the week, prices ended about 0.4% lower after that 12% plus surge the week before.
In London February Brent crude rose 44 cents, or 0.8%, to $US54.33. That left it 0.2% down over the week.
On Friday, the weekly rig use update from Baker Hughes revealed a surge in the number of rigs being used to drill for oil. Baker Hughes said the number rose 21 last week to 498, the highest level since January. The total active US rig count, which also include natural-gas rigs, jumped by 27 to 624, according to Baker Hughes.
OPEC was hoping to get other big producers to join it in cutting output, in an effort to stabilise the struggling oil market.
OPEC agreed to cut output by 1.2 million barrels a day, equivalent to about 1% of global production, starting next month.
It set an output ceiling of 32.5 million barrels a day for its members. Non-OPEC members will cut their output by another 562,000 barrels a day, with Russia expected to take on half of that, according to Reuters. That is just short of the 600,000 barrels a day target.
But OPEC production has been running at record levels ahead of the deal’s planned implementation. It climbed to a record of 33.86 million barrels a day in November, according to a survey last week from S&P Global Platts. That means the cut in output will be around 1.3 to 1.4 million barrels a day by OPEC members.
Apart from Russia, the talks were attended by or had comments or commitments sent from non-OPEC members Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan.
Reuters points out that many non-OPEC countries such as Mexico and Azerbaijan face a natural drop in oil production (from declining fields) “and some analysts expressed doubts those declines should be counted as cuts."
Reuters said Oman and Kazakhstan had yet to inform their foreign partners on joint oilfields about possible output cuts.
Of course the biggest non-OPEC allied producer, the US will be sitting this one out.
Saudi Arabia has told told American and European customers it would reduce oil deliveries from January, signalling it has already started introducing cuts.
And OPEC producers Iraq, Kuwait and the United Arab Emirates have also told crude oil buyers about planned reductions in early 2017.
