Opec November 2016 Agreement
The reductions will take effect on January 1 and last six months. During this period, traders will monitor oil traffic to determine if fewer exits from the port. They cannot monitor Russia`s promise to cut production by 300,000 b/d because much of its production is relocated by pipelines, says Abhishek Deshpande of Natixis, a bank. But he believes the deal will begin next year to cut global oil inventories. Non-OPEC production has declined this year, adding to the deal`s efforts. In contrast, he said: “Global demand for oil is expected to grow at a healthy level of about 1.2 million barrels per day in 2016 and 2017.” “Without their consent, it`s technically unenforceable, so there`s always some uncertainty about it,” John Chairman of Alfa Energy Group in London told the BBC. The deal comes less than two weeks after OPEC members agreed on production cuts. It is expected to help raise oil prices further, which have risen by more than 15% since 29 November. International benchmark Brent crude oil is now trading around $54 a barrel.
However, some analysts have said that these price levels, which are half as long as they were two years ago, may not be sustainable. In today`s market, major exporters such as Iran, Russia and Saudi Arabia are engaged in a fight for market share, particularly in Asia, and will not want their rivals to increase their sales at their expense. “This agreement stems from a sense of responsibility of The Opec member states and non-Opec countries for the overall well-being and health of the global economy,” he said. But Saudi Arabia, OPEC`s largest producer, understood that pragmatism was its best option. The promised 4.6% reduction in production is reflected by many other OPEC members, although Iran has been allowed to increase symbolically because it is recovering from nuclear sanctions. This may be annoying for Saudi Arabia, but it is likely that rising oil prices will benefit iran far more than Iran if it is sustainable than it will lose if it loses 486,000 b/d of its total production. It promises to fall to 10.05 million .b/d, which is not much lower than the level of the first quarter of 2016. Spencer Welch, director of IHS Energy, said the deal would boost oil prices in the short term, but added: “Among Opec members, there are always differences on how to measure production, so the deal will be difficult to measure.” In its latest report on U.S. crude oil production, the U.S. Energy Information Administration said that in 2016, domestic production will average 8.8 million barrels per day, below the 2015 average of 9.4 million barrels per day and roughly in line with the Authority`s 2017 forecast of 8.7 million barrels per day. Referring to opec`s recently released 2016 global oil outlook, Sada continued to look to the future: “First of all, it remains a growth activity, with global oil demand in 2016 reaching more than 109 million barrels of oil per day by 2040, a healthy increase of more than 16 million barrels per day.” This agreement cements us and prepares us for long-term cooperation,” Saudi Energy Minister Khalid al-Falih said after the meeting with reporters, calling the agreement a “historic.” Russia will reduce 300,000 bpd of that amount, Novak said. He added that it would be gradual and by the end of March, Russia would produce 200,000 bpd less than in October 2016 of 11.247 million bpd – Russia`s highest production estimate to date.
The deal, similar in the history of the oil industry after price failures, could “achieve temporary success, particularly in terms of mood influence and hence support for oil prices in the short term, but will eventually succumb to members` temptation to increase production,” said Robert McNally, president of Rapidan Group, a Washington-based market research firm. “We have had great success today,” said Mohammed Bin Saleh Al-