Oil prices were optimistic on Friday, following the Organization of the Petroleum Exporting Countries’ (OPEC) decision to extend output cuts until the end of 2018, so as to tackle global supply glut.
International benchmark Brent for the February contract traded up 0.9 percent to $63.23 per barrel, and US West Texas Intermediate (WTI) January crude futures rose by 0.7 percent to $57.84.
Analysts said that OPEC’s recent extension was already included. Brent has grown 3.6 percent, while WTI increased about 5.6 percent throughout November as traders raised prices in hopes of the production cuts to continue past its due in March 2018.
Gains however, are expected to be subdued as inventories will have to be curbed further. Oil prices are likely to hang around current levels until next June when supplies would be improved, but a tightening is expected after that.
Commodity analyst David Lennox also believes that oil prices will not rally too much further because when it does, they will be seeing more activity from US shale oil producers.
A British financial firm said that US oil production may add another 1 million barrels per day (bpd) before the end of 2018, after the extension of the OPEC cuts and that there is an apparent upside risk increase output gains if current prices persist.
Government data showed that US produced 9.68 million bpd last week, its highest level in more than three decades. The International Energy Agency also expects that the US would become the largest net exporter by the end of 2020.
OPEC Extends Output Cuts
OPEC, together with non-OPEC producers led by Russia agreed on Thursday to extend oil output cuts until the end of 2018, but indicated that they could exit from the deal if the market overheats.
The contract slashes 1.8 million bpd from the market, so as to cope with oversupply and boost prices.
Instead of prolonging the deal by nine months, the group stated that it was executing a new agreement that will last from January to December of 2018.
Moreover, Nigeria and Libya, two OPEC who were exempted from the deal, have decided not to raise their output next year above the 2017 levels.
Producers will be reviewing the contract at the next OPEC meeting in June.
With regards to a possible exit, Saudi Energy Minister and OPEC’s current president Khalid Al-Falih said that it is still early to discuss about an exit plan as OPEC and its allies are counting on oil demand in the third quarter of next year to finally eliminate the inventory surplus.
Falih added that he did not expect an exit from the deal in the first six months of 2018.
Russia had been pushing for a way out of the cuts and prevent a rally in oil prices that would only result to more drilling in the US, which is not a participant of the deal.
There have also been concerns that the rising oil prices on account of the output cut, has allowed US shale oil producers to come back online.
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