Naturally oil futures finished out the week on a high, scoring a weekly gain of more than 12% as traders continue to hold out hope for the success of OPEC’s output cut deal.
Despite unanswered questions about the cut, prices rose again on Friday to complete a near 7-year topping gain for the week.
January West Texas Intermediate crude added 62 cents, or 1.2%, to settle at $US51.68 a barrel in New York.
Prices climbed nearly 13% over the past two sessions alone, as the market continued to cheer the deal reached Wednesday by OPEC.
For the week, prices were about 12.2% higher—the largest weekly percentage gain since the week early January, 2009.
In London February Brent crude rose 52 cents, or 1%, to settle at $US54.46 a barrel, with prices based on the front-month contracts ending 12.9% higher for the week.
The gains saw both Brent and US crude futures settle at their highest levels since July 2015.
Prices rose despite another increase in the number of active rigs drilling for oil in the US. Figures from Baker Hughes on Friday for oil rose by 3 to 477 rigs this week. As a result the total rig count, which includes oil and natural-gas rigs, rose 4 to 597.
So for the coming week, expect some second thoughts as investors look for more detail on the cuts and just who will cut.
The conference documents released on Wednesday evening showed OPEC countries, except Libya and Nigeria, cutting production from the start of January by 1.2 million barrels a day to 32.5 million for an initial period of six months.
But analysts said that based on the figures provided, the actual production ceiling appears to be 32.68 million barrels a day (bpd), which is almost 200,000 bpd higher than the new target.
And then there is the small increase for Iran.
Because Iran has spent years under sanctions, Opec agreed to give it an output baseline of 3.975 million bpd — which was the figure back in 2005 before the sanctions were imposed. Analysts point out that was the highest pre-sanctions production figure for the country.
Most other OPEC members cutting production had a baseline month of October (except Angola).
For Iran, a 4.5% cut from that 2005 figure produced a ‘cap’ of just on 3.8 million, compared with 3.71 million currently – so Iran gets a 90,000 barrels a day increase!
And then there is what appears to be the Angola fudge (Angola is broke).
According to a report in the Financial Times it was agreed that, due to field maintenance affecting Angola’s output by about 200,000 bpd in October, the country’s target would instead be based on what it produced the previous month. But OPEC does not appear to have added Angola’s 200,000 bpd production to its starting point for the overall deal. Analysts further point out that Indonesia and its 720,000 barrels a day of production is included in the cap, even though it has been suspended from OPEC because it is a net importer. There is also the question of just how much oil exempted countries, Nigeria and Libya will produce.
On top of that there is the non OPEC production cuts – Russia will account for half the 600,000 barrels, but no one knows where the rest will come from, or just how Russia will ‘cut’.
It could say it has cut by deciding not to increase production in 2017 as it was reported to be planning. In that case Russia maintains output in a misleading way and that cut of 600,000 barrels a day of non-OPEC oil could end up an illusion.
