- Oil Prices Drop as Doubts Over Output Cuts Mount
Oil prices slipped yesterday over doubts that large oil producers will reduce production as promised and on expectations that United States production would increase again this year.
Benchmark Brent crude oil was down 23 cents a barrel at $55.22, while U.S. light crude fell 21 cents to $52.16.
The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd from January 1 in an attempt to clear global oversupply that has depressed prices for more than two years. Russia and other key exporters outside OPEC have said they will also cut output. But global oil production remains high and, with inventories near record levels in many areas, investors doubt that OPEC and its allies can trim output enough to push up prices.
“Cuts by OPEC and non-OPEC countries have just started and it will take some time for them to filter through. We do not really expect the oil price to strengthen much more in the first quarter of 2017,” said Bjame Schieldrop, Chief Commodities Analyst at SEBMarkets in Oslo, Norway.
Comments by Saudi Arabia’s Energy Minister Khalid al-Falih, combined with a federal holiday in the United States are adding further downward pressure on prices, according to Olivier Jakob of consultancy Petromatrix. Falih said that OPEC and non-OPEC producers are unlikely to extend their agreement to cut oil output beyond six months, especially if global inventories fall to the five-year average.
“We don’t think it’s necessary given the level of compliance,” Falih said. “My expectations (are) … that the rebalancing that started slowly in 2016 will have its full impact by the first half.”
Meanwhile, OPEC Secretary-General Mohammad Barkindo had said in a Bloomberg Television interview last Friday that oil producers will adopt compliance mechanisms at a meeting in Vienna on January 22. Members will also meet in the city in May to assess the market and decide whether the group, as well as non-OPEC producers, need to extend the agreement to curb production, Barkindo said. Russian oil and gas condensate production averaged 11.1 million bpd for January 1-15, two energy industry sources said, down only 100,000 bpd from December.