Iran welcomes OPEC production cut decision

OPEC will reduce output to 32.5 million barrels a day, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna following a ministerial meeting on Wednesday.

One way it was able to do that was through Indonesia’s suspension from membership of Opec, the country having been unable to commit to the production cut, given that it is a net oil importer.

While the agreement is far from flawless, Cavendish Asset Management’s Paul Mumford suspects it will do wonders for lifting oil prices.

Energy and resources stocks in Europe shares outperformed the broader indices, which snapped a two-day winning run. Benchmark U.S. crude rose $1.62, or 3.3 percent, to close Thursday at $51.06 a barrel in NY.

The announcement of the deal on Wednesday had led to a more than 10 percent rise in prices for Brent crude oil futures, the worldwide benchmark for oil prices.

OPEC tried to talk up the markets at various times, but their words rang hollow.

Recent OPEC meetings have failed because of arguments between de facto leader Saudi Arabia and third-largest producer Iran.

“A lot of these countries are highly dependent on revenues derived from oil exports”, said Yie, an equity analyst focused the North American energy, financial services and consumer sectors. Mexico denies that it will make the 150,000 barrel cut envisaged by OPEC, but it expects output to fall anyway next year.

“There is a real risk that higher prices could reactivate more dormant shale oil”, said ANZ Research, which expects worldwide oil prices to hit strong resistance at around $60 a barrel in early 2017. Oil prices are up 10 pct this week topping $53 a barrel. The average petrol prices were 3p-per-litre lower at the end of the month at 113.86p-per-litre than at the beginning.

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, dropped for a second day as the OPEC agreement reverberated. But if gasoline prices jump to $4 a gallon, “that could be bad”.

Under the “seven-big wins” initiative launched recently, the federal government outlined plans to swiftly increase the country’s daily crude oil production capacity to about 2.3 million barrels and grow national reserves to about 30 billion barrels.

For the OPEC basket, the commodity price steadies at forty three dollars per barrel.

“In fact, we’re not even fully confident that Russian Federation will freeze production, particularly if the market tempts them with higher prices”, said Tim Evans, a Citi Futures analyst. According to Bloomberg News, the deal is created to drain record global oil inventories.

At the end of the day, the USA oil boom has fared much better than feared when OPEC launched the price war two years ago.

What will be interesting to observe is the role of how U.S. oil producers will react. However, doubts that the cuts would be implemented saw prices start to fall again, and by November 14 the price was below $41. The number of active US drilling rigs bottomed out at 404 in May and has been rising since, to just below 600 last week. One thing I have noticed from observing OPEC and Saudi Arabia over the past 20 years or so – when the Saudis want specific action from OPEC, it happens.

The first OPEC agreement in eight years could be the driver that the market has been waiting for to break out of its stubborn trading range of $40-$50.

“We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.”, Goldman Sachs said. There are now nearly as many drilling rigs running in the Permian as in the rest of the country combined, including offshore.

“It’s clearly too soon to know what beyond the short-term market gain will be the consequences of this mini-renaissance of OPEC-for other producers and for the group itself”, Credit Suisse analysts said. The specialty firms that do the fracking have raised prices because “they are booked out through June or July”.