OPEC production jumped before global deal on cuts, IEA says

“This is a very powerful message that producers want to balance the market higher”, said Chris Weston, chief market strategist in Melbourne at IG, told Bloomberg News.

It seems like a big deal.

Oil prices have increased marginally on the prediction that non-OPEC producers may agree to reduce oil production. Higher prices for oil have offset raised investor expectations for Fed rate increases and a more uncertain trade environment for Canada since the US election.

Abu Dhabi, Kuwait and Qatar said they will join members of the Organization of the Petroleum Exporting Countries (OPEC) and other exporters in lowering production.

At press time International Benchmark Brent crude was trading at $56.75 a barrel – a rise of 4.45 per cent since markets closed last week.

It represents the first such deal between Opec and non-Opec members for 15 years.

“Saudi Arabia even suggested that it will cut output even more than it is required to do so next year, showing that the historic deal has credibility”, says Dhar.

Jason Schenker of Prestige Economics calls Saturday’s decision “a historic deal”, and there is little doubt that in the short term the combined cut will result in somewhat more pricey oil – and, by extension, vehicle fuel, heating and electricity.

The greenback has surged in the past month on expectations of higher borrowing costs, with President-elect Donald Trump’s promises of big spending and tax cuts fanning talk of a surge in inflation.

“We fear there are too many moving parts for OPEC to sustain its new policy in the long term”, said Barclays analyst Michael Cohen, who sees oil prices falling again in the second half of the year. There is also uncertainty on the demand side, the global economy is now less energy and oil-intensive than it used to be and sluggish economic growth means that demand will not grow rapidly.

“Declines in Chinese … crude oil output and expansion of its strategic crude reserves underpin our view for China’s crude oil imports to strengthen over the coming quarters”, said BMI Research.

Compliance is also an issue. But that deal was contingent on noncartel members such as Russian Federation and Mexico cutting output.

A prolonged decline in global crude prices began in late 2014 after key OPEC members chose to keep production levels high, despite a worldwide oversupply. US Treasury yields were hovering at their highest levels in months. For 2016, demand is set to grow by 1.4 million barrels per day, an increase of 120,000 from the previous estimate. “Success means the reinforcement of prices and revenue stability for producers after two hard years; failure risks starting a fourth year of stock builds and a possible return to lower prices”, the Paris-based organization said.