Oil edged up to near $55 a barrel on Wednesday, continuing its uptick from before the long holiday weekend. This expansion drew support from expectations of a tighter supply when the first output cut deal between OPEC and non-OPEC oil producers in 15 years goes into effect next week.
Yes, the first of the year marks also the official beginning of the Organization of Petroleum Exporting Countries (and non-OPEC) producers to lower their production by roughly 1.8 million barrels per day.
But this comes after Brent crude LCOc1 showed a bump of 17 percent—at $55.33 per barrel—in the morning (EST). The global benchmark is only a few cents higher–$57.89, on December 12—which was the highest since July of 2015. In addition, US crude Clc1 improved 30 cents (to reach $53.32).
Still, Petromatrix oil analyst Olivier Jakob remarks, “To go above $60 is going to be difficult. We’re already close to the top rather than the bottom of the range right now. From January, we’ll start to have a better idea about the level of OPEC production. That is going to be more and more of a focus.”
This is all a good sign, then, that the cutback is not only responsible but necessary for maintaining consistent sales in the oil industry. As such, SCI International commodities analyst Gao Jian notes, “At this point, most market watchers are optimistic that participating nations will comply [with] the production quotas in the first few months.”
However, OPEC’s goal to reduce global supply (to get rid of the glut), could be trampled by steady growth in the US. US rig drilling increased from 13 to 52 in the week before the Christmas holiday. This marks the eighth straight week of growth in that area and the biggest growth rate since the same time last year.
Accordingly, Citi Futures analyst Tim Evans comments, “Given the uptrend in the rig count, supported by higher prices than a year ago, we wouldn’t rule out a further upward revision in the Energy Department forecast for December 2017 from this month’s 9.0 million barrels a day rate.”