04 January 2017, Lagos – Crude oil prices tuesday, the first trading day of 2017, hit an 18-month high, buoyed by hopes that a deal between the Organisation of Petroleum Exporting Countries (OPEC) and other exporters to cut production, which kicked in on Sunday, will drain a global supply glut.
Global benchmark, Brent crude, jumped more than two per cent to a high of $58.37, up $1.55 a barrel and its highest since July 2015. Earlier in the day, Brent had eased to $58.12, up $1.30.
US light crude oil, West Texas Intermediate (WTI), hit an 18-month high of $55.24, up $1.52 a barrel, also its highest since July 2015, before slipping to around $55.00.
Reuters reported that oil futures exchanges were closed on Monday for New Year public holidays.
An agreement between OPEC and some non-members to reduce their output by almost 1.8 million barrels per day (bpd) kicked in on January 1.
In November, OPEC reached its first production deal in eight years, vowing to lower output by 1.2 million barrels a day to boost prices.
Crude oil rallied after the announcement and finished the year up by 45 per cent, its biggest annual gain since 2009.
However, it is uncertain whether OPEC members will stick to their production limits.
But in a statement on Monday, Saudi Arabia’s cabinet had urged OPEC members to implement their agreement.
Reuters quoted analysts as saying that the first signals had suggested that the OPEC and non-OPEC production cuts were raising hopes that the global oil oversupply will diminish.
According to them, the oil markets will be looking for “anecdotal evidence” for production cuts.
It is anticipated that in the early stages, the most likely scenario is that OPEC and non-OPEC member countries will be committed to the output deal.
Investors will also be watching OPEC very closely to see whether the group’s members keep their promises to reduce production.
Libya, one of the three OPEC countries exempt from the output cuts, has increased its production to 685,000 bpd, from around 600,000 bpd in December, an official at the National Oil Corporation said on Sunday.
Non-OPEC Middle Eastern oil producer, Oman reportedly told customers last week that it would cut its crude oil term allocation volumes by five per cent in March.
Non-OPEC, Russia’s oil production in December remained unchanged at 11.21 million bpd, near a 30-year high.
However, the country plans to cut output by 300,000 bpd in the first half of 2017 in its contribution to the accord.
Higher oil prices have encouraged US shale producers to ramp up production, thus threatening the global efforts to reduce excess inventory in the oil markets.
The count of active oil rigs rose last week for a ninth straight week, increasing the combined tally to the highest level in one year, according to Baker Hughes.