Russian Federation cuts oil output in January to comply with OPEC deal

Jon Howard
January 11, 2017

Meanwhile, Iraq has said that the autonomous Kurdish region was exporting more than its allocated share of oil as the country seeks to comply with the OPEC output cut.

Prices dropped 2.2 percent. Brent futures were down $1.40 a barrel at $55.70 a barrel.

"Concerns regarding the sincerity, depth and duration of announced production cuts notwithstanding, most analysts, including us, see tighter-than-previously-envisaged balances for 2017", they said.

The Kingdom cut oil output in January by at least 486,000 barrels per day (bpd) to 10.058 million bpd, fully implementing an agreement by the Organization of the Petroleum Exporting Countries (OPEC) and other producers to curb a global supply glut.

Sources also told Reuters that Iraq's State Oil Marketing Company (SOMO) had given three buyers in Asia and Europe full supply allocations for February. That would cancel out the entire cut contributed by Russian Federation and could force Saudi Arabia to slash more output than planned to ensure OPEC meets its output targets, something the kingdom's officials have suggested they would do.

Nonetheless, given the stabilisation of crude oil prices, Kenanga Research analyst Sean Lim Ooi Leong believes it will entice oil majors to increase their activities, with prioritisation on opex-related jobs in shallow waters to reap low-hanging fruits.

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Brent crude futures settled 21 USA cents higher at $US57.10 per barrel, after trading in a range of $US56.28 to $US57.47. Its 15-day average implied volatility is 27.7%.

Crude oil prices ended the year above $50 per barrel (b). It was also the lowest close since December 7. The global benchmark crude closed at a $US2.07 premium to March WTI.

He said the 1.2m barrels of oil OPEC has pledged to remove from daily production should push the price of oil into the $60-$70 range, with cuts by non-OPEC members potentially forcing prices up to the top end of that scale. As a result, the crude inventories would decline.

Data out of the USA in December revealed that oil drillers were returning idled rigs back online at the fastest rate since March 2014, with 65 oil rigs added by the end of the month, bringing the total U.S. oil rig count up to 525 - the highest since last January. Last week's official report showed a 7.05 million-barrel draw in the final week of the year. Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the nation's biggest oil-storage hub, probably increased by 300,000 barrels last week, according the Bloomberg survey.

CRUDE OIL TECHNICAL ANALYSIS - Crude oil prices continue to consolidate in familiar territory.

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