8Despite moderate scepticism amongst analysts, concerned about the capacity of OPEC to deliver on promised supply cuts, Brent crude, the global oil bench mark, rose 2.15% to $58.04 a barrel on London’s ICE Futures exchange, marking a 18-month high. Fuelled by optimism on the strength of the OPEC deal designed to reduce global stockpiles, signed in late November 2016, of which promised an OPEC and non-OPEC, combined production cut of 2% of global production, beginning this month.
Although concerns remain regarding the capacity of U.S. shale producers to increase their production, with increased prices already stimulating a corresponsive, yet tentative increase in drilling – the general market notion remains one of optimism, as analysts remain confident in OPEC’s capacity to deliver on the promised production cuts.
With Saudi Arabia, the de facto leader of the oil cartel, promising the largest cuts, and requiring an oil price above $55 a barrel to stave off a deficit in 2017, according to economists, the prospect of true production cuts remains strong, and the price of the commodity is, according to current market sentiment, likely to increase as 2017 trading progresses.
However, history has sown caution into many traders and analysts, who have been subject the consequences of multiple attempts by cartel members to forge or ‘adjust’ the true scope of production cuts, however, with the promise of genuine supply policing and true supply readings by member states, the prospect of bull-control in 2017’s oil market remains likely.
Since the rebound in 2009, oil prices last year posted their largest gains, of almost 25% since the signing of the OPEC deal in late November. The continued notion amongst many traders and analysts is it will be OPEC that creates the most significant market movement – a notion that has been reduced significantly in recent years, with the cartel unable to agree to any lasting production cuts or freezes.
Traders and analysts will be watching closely as production statistics are posted later in January by members of the cartel, hinting at levels of genuine commitment by member nations in the first month of the deals implementation. Non-OPEC members, primarily Russia, the largest non-OPEC oil producer, will no-doubt also be watching intently, to gauge the true commitment of OPEC to conform to the premise of the agreement.