Desperate OPEC and Russia have lifted the size of their daily production cap to try and offset a rising global oil glut that threatens to send prices lower in early 2020.
OPEC and its allies, which include Russia, announced Friday that they will cut output by a further 500,000 barrels a day starting in January. The cuts will add to the existing agreement to curb output by 1.2 million barrels a day that started 11 months ago.
The news should boost the prices of oil stocks like Woodside, Santos and Oil Search today – unlike gold shares which will be sold off after a big fall on Friday after the US jobs report. (See below).
Including the latest cuts, the daily cut total will be 1.7 million barrels from the October 2018 baseline, with the quotas set in place through to next March.
OPEC members and its allies, led by Russia will hold extraordinary meetings on March 5 and 6 to decide whether to extend the cuts or reconsider production levels deeper into 2020.
Saudi Arabia said it would curb output by an additional 167,000 barrels a day, but it also said it would continue with its voluntary cuts of 400,000 barrels a day—reductions beyond its quota limit—to take its production target to 9.744 million barrels a day once the new cuts start.
Analysts say the extra Saudi cuts take the reduction to 2.1 million barrels a day – a reduction that could very well help the arrival on some stockmarkets from Wednesday of Saudi Aramco, the country’s big oil producer, and exporter.
A clear output reduction and higher price (and an attempt to reduce the glut) could make the launch of the float much easier to handle. Dealings in Aramco shares start on Wednesday in some markets. the share price is likely to become a proxy indicator for oil politics and market strains.
The fallout from the OPEC announcements saw oil futures climb on Friday, with prices posting their highest settlement since September. The solid US jobs report for November had little impact on oil prices.
West Texas Intermediate (WTI) crude for January delivery rose 77 cents, or 1.3% in New York, to settle at $US59.20 a barrel.
February Brent crude added $1, or 1.6%, to end at $US64.39 a barrel in Europe
For the week, WTI rose 7.3% — the biggest such rise since the week ended June 21. Brent saw a 6.5% rise, the largest weekly rise since in 10 weeks. In fact, both benchmarks logged their highest settlements since September.
Friday’s production cuts had been well leaked midweek and saw prices run-up but steady on Thursday when the OPEC meeting started its first day of talks.
Meanwhile, data from Baker Hughes on Friday revealed the 7th straight weekly cut in the number of active rigs looking for oil. the number fell by 5 to 663.
The number of active US oil rigs fell by five to 663 last week, down 214 from a year earlier. The total active US rig count (including gas) meanwhile, also fell by three to 799, down 276 in the past year.
US oil stocks fell 4.9 million barrels last week to 447 million barrels – up 3% on this time of year in early winter.
US production hit an estimated 12.9 million barrels a day last week. Up to date cumulative daily average for 2019 show output is 13.7% at around 12.63 million barrels a day.
