Some analysts expect Brent crude to hit US$60 this week—a first in a year and a half, after Saudi Arabia’s oil minister fueled the already upbeat markets by saying over the weekend that the kingdom would be cutting even more than it had committed to in the November 30 OPEC deal.
Oil prices rallied in early Morning trade and as of 6:20 AM (EST), WTI Crude was surging 4.47 percent at US$53.80, while Brent Crude was soaring 4.14 percent at US$56.58.
Following Saturday’s meeting between OPEC and non-OPEC producers that ended with non-cartel nations pledging a collective 558,000 bpd in production cuts on top of OPEC’s promised cuts, Saudi Arabia’s oil minister Khalid al-Falih said:
“I can tell you with absolute certainty that effective Jan. 1 we’re going to cut and cut substantially to be below the level that we have committed to on Nov. 30.”
At the end of November, Saudi Arabia and other OPEC producers reached a deal to cut output effective January 1, in which the Saudis pledged to cut supply by 486,000 bpd from a reference production level of 10.544 million bpd, to 10.058 million bpd.
Now the Saudi oil minister further stoked the markets, saying that Saudi Arabia would cut below the 10-million-bpd mark—a promise that if fulfilled, would give rival Iran even more market share.
Talking aside, according to an OPEC source that had talked to Reuters, Saudi Arabia’s oil production hit a record-high volume in November at 10.72 million bpd, compared to 10.625 million bpd in October.
Analysts are divided as to how the OPEC-NOPEC deal will play out. Some see al-Falih’s words as a catalyst for oil prices, others simply say that the horrible compliance track records of OPEC and non-OPEC show that the cartel is just playing the markets to lift prices despite the reality of the looming supply glut. For now, the market will have to weigh promises of a different future against the reality of soaring production in an already saturated market.
According to Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong, who talked to Bloomberg:
“The Saudis’ latest deal with non-OPEC countries could potentially boost Brent crude price toward $60 this week.”
Stephen Schork, president of Pennsylvania-based consultancy Schork Group Inc, told Bloomberg:
“OPEC is playing Wall Street very well. The Russians have a completely horrible track record of abiding by these types of agreements. OPEC will be lucky if you see two-thirds of this agreement honored. I’m highly skeptical that the Saudis are going to play nice and cede further market control to the Iranians.”
It will be just a month or two before we can say with certainty whether OPEC and non-OPEC members will defy history and make good on the promised cuts.
By Tsvetana Paraskova for Oilprice.com
