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Why Oil May Regain Upward Momentum

Why Oil May Regain Upward Momentum

Experts have predicted that positive…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The Bulls Are Back: Oil Spikes As Non-OPEC Pledges 558,000 Bpd Cut

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Almost a dozen non-OPEC producers have agreed to reduce their crude oil output in a bid to support OPEC’s efforts to prop up prices. Among them are Mexico, which has pledged to cut 100,000 bpd from its daily total; Azerbaijan, which agreed to reduce production by 35,000 bpd; and Oman, which will cut 40,000 bpd from its daily output. Kazakhstan also joined the agreement, pledging a 20,000-bpd reduction.

Other participants included Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan.

OPEC, together with the rest of the 11 non-OPEC oil producers, including Russia with its 300,000-bpd cut pledge, will bring the total cut in global oil production to about 2 percent, or 1.8 million barrels.

The news, coupled with Saudi Arabia’s separate announcement that “[…]effective Jan. 1 we’re going to cut and cut substantially to be below the level that we have committed to on Nov. 30,” pushed oil prices higher, with analysts now talking about $60 a barrel or even more, as OPEC’s largest producer tries to fill a substantial budget deficit gap.

Markets were also probably impressed by the revelation by the energy ministers of Russia and Saudi Arabia that the OPEC-non-OPEC deal had been in the making for a year now. This is the first agreement between the cartel and other oil producers since 2001, which is probably why analysts are so enthusiastic. Related: Oil Prices Climb To 17 Month Highs As Saudis Vow To Cut Even More

However, it’s worth noting that a lot of the amount to be cut by non-OPEC members will come from passive rather than active measures. Russia seasonally decreases production by about 150,000 bpd in the spring, and Mexico has said that its contribution to the cut will be the result of “managed natural decline”, meaning it will just let output at mature fields fall without trying to increase it. According to Bloomberg, this is likely to be the approach to be adopted by Azerbaijan as well, and possibly other non-OPEC producers, too.

Markets reacted to the news cheerfully, with Brent reaching US$56.65 a barrel in mid-morning trade in Asia today, and WTI jumping to US$53.94 a barrel, both benchmarks up by more than 2 percent.

By Irina Slav for Oilprice.com

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