Oil pact could quickly sop up market glut: IEA

The oil bear market is well and truly over opined a commentator in the United Kingdom financial press recently, noting that the oil price had “rocketed” after Saudi Arabia, leader of the OPEC oil cartel, shook hands with Russian Federation – the effective leader of the non-OPEC nations outside the USA – to agree to reduce the supply of oil next year.

Record inventories accumulated since 2014 will dwindle at a rate of about 760,000 barrels a day in the first half of next year if OPEC and 11 other oil producers deliver the supply cuts pledged on December 10, according to Bloomberg calculations using data from the International Energy Agency. That was up 300,000 barrels a day from a month earlier, and “more than offset” a drop in production by non-OPEC countries.

“We note that the higher the barrel price, the greater the temptation to break allocated quotas”, the firm said.

Market participants are also looking ahead to the EIA’s weekly report on USA stockpiles, which will be released Wednesday morning.

“What the Saudis want to do is to ensure that they don’t get flows from secondary suppliers coming in from other markets into Asia”, said John Driscoll, the chief strategist at JTD Energy Services, who has spent more than 30 years trading crude and petroleum in Singapore.

No further details about production levels were given in the statement.

This could mean “production restraint might not be extended”, the organisation said, which may make high-cost producers think twice before approving new investments.

ADNOC’s production hit a record 3.1 million bpd in November, according to a Reuters survey.

USA crude inventories probably shrank by 1.5 million barrels last week for a fourth straight decline, according to the Bloomberg survey before an Energy Information Administration report on Wednesday. February crude futures closed up almost a buck (98 cents) at $52.44.

The IEA now sees global demand growth of 1.4 million barrels a day this year, up 120,000 barrels from its previous forecast.

US import prices recorded their biggest drop in nine months in November on declining petroleum costs, with renewed dollar strength threatening to keep imported inflation subdued.

He pointed out that to make any conclusions regarding the implementation of the deal would be possible only six months after.

Oil exporters are less likely to cheat if the deal delivers the promised significant improvement in revenues, at least at first.

The Dow Jones Industrial Average rose 67.56 points, or 0.34 per cent, to 19,863.99.

“If OPEC and non-OPEC were to implement strictly their agreed cuts, global inventories could start to draw in the first half of next year”, it added. Diesel futures fell 0.6 cent, or 0.36%, to $1.6657 a gallon.

On Monday, “natural gas made a big-time pullback after a warmer weather outlook”, said Phil Flynn, senior market analyst at Price Futures Group.