Crude oil at highest levels since July 2015 on expectations of supply reduction

28-Dec-16

With effect from January 2017, most members of the Organization of the Petroleum Exporting Countries (OPEC) and 11 other non-cartel producers will start scaling back production as part of a deal they made at the end of November. The reduction goal of roughly 1.8 mln barrels will happen in phases. Crude futures continued their end-of-year rally, taking oil to its highest finish since July 2015 on expectations that global oil producers will honor a landmark agreement to reduce supply, as per MarketWatch.com. Support for the market appeared to result from comments last week by Saudi Arabia’s Energy Minister that oil prices are set to recover next year as production cuts help to rebalance an oversupplied market and that producers have established a monitoring committee to ensure that output cuts are adhered to. According to the pact, the parties are obligated to cut production, but exports remained untouched. This means these producers will have to rely on existing inventories to sell their barrels.

Light, sweet crude futures for delivery in February on the Nymex rose by 1.7%, to finish at US$53.90 a barrel, while Brent crude on London’s ICE Futures exchange settled at US$56.09 a barrel.