Oil surges as OPEC+ is said to agree on cuts

OPEC deal could push oil to $80 per barrel – analyst tells RT

Al-Falih's dilemma: cut production and anger President Donald Trump, or let oil prices plunge and risk damage to a Saudi budget that requires oil prices above $70 a barrel in 2019.

The group agreed in November 2016 to cut oil production by 1.8 mbpd to rid oversupply in the market and raise oil prices, and extended that until the end of 2018.

Brent crude, the worldwide benchmark for oil prices, rose $2.78, or 2.6 percent, to $62.84 a barrel by 8:47 a.m. ET (1347 GMT). New York time. West Texas Intermediate for January delivery gained US$2.15 to US$53.64 a barrel on the New York Mercantile Exchange.

"The OPEC+ cut is fuzzy on details and will likely result in less reduction than the headline figure of 1.2 million bpd", said Bob McNally, president of USA -based Rapidan Energy Group.

Russia is to cut production by two percent from October's output of 11.4 million bpd, according to Russian Energy Minister Alexander Novak. This followed a notable rise in export levels the previous week, and therefore reflects a normal variation for many OPEC states.

Against this backdrop, OPEC faced a particularly thorny challenge: Cutting too much and supporting prices at too high a level would risk curbing demand and supporting US production expansion; and reverting to a market share war would risk another price collapse, with the attendant collateral damage to producing economies.

The price of crude has fallen nearly a third since October as Saudi Arabia, Russia and the United Arab Emirates raised output to offset lower exports from Iran.

REUTERS  Stringer
REUTERS Stringer

Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has faced demands from Mr. Trump to help the global economy by refraining from paring supplies. Yet, it's a paper tiger achievement: In reality, the US remains exposed to global energy prices, still affected by the old geopolitics of the Middle East.

Saudi Arabia's energy minister Khalid Al-Falih said that the group's decision to slash production was made out of economic necessity and was "not driven by any political agenda". The US announced exemptions for countries such as India, China etc., allowing them to import crude oil from Iran.

It was previously reported that Iran was seeking exemptions from a planned cut in oil production, causing OPEC talks to reach a deadlock.

The data on US supplies come as the globe's major producers prepare for a planned reduction in output early next year.

A Russian Energy Ministry source said on Friday Moscow was ready to contribute a cut of around 200,000 bpd and that Iran, not Russia, now seemed the main hurdle for a deal. The Delaware Basin, the less drilled part of the field, holds more than twice the amount of crude as its sister, the Midland Basin, the U.S. Geological Service said Thursday.

However, the U.S. then granted temporary waivers to eight countries, including crucially China, to allow them to carry on importing Iranian oil, contributing to a plunge in oil prices which wiped out the gains seen since early 2017. Analysts had forecast a decline of 2.39 million barrels.

"Hopefully OPEC will be keeping oil flows as is, not restricted". Production cuts or embargoes by OPEC have led to huge increase in petroleum prices in the past, which have been termed oil shocks. Madan Sabnavis, chief economist at Care Ratings, said that while OPEC's production cuts will definitely lead to a rise in oil prices, the extent will depend on the combination of demand from non-US consumers, especially China, inventories and domestic demand in the USA, given the onset of winter, and supply from non-OPEC nations.

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