Singapore: Oil prices slipped on Wednesday on persistent doubts whether a planned crude production cut led by OPEC and Russia would be deep enough to end a supply overhang that has dogged markets for over two years. International Brent crude futures were at $53.76 per barrel at 12.12pm, down 17 cents, or 0.32%, from their last close.
Oil prices shot up as much as 19% after the Organization of the Petroleum Exporting Countries (OPEC) and Russia last week announced they would jointly cut production next year in an attempt to prop up markets.
However, doubts have since emerged whether the planned cuts will be big enough to end oversupply. Since the deal was announced, both OPEC and Russia have since reported record production.
“With both Russia and OPEC producing at record (levels), the market is scratching its head about how both blocs will manage to comply with the Vienna production cut targets,” said Jeffrey Halley of brokerage OANDA in Singapore. “The point is valid, as the more OPEC and Russia produce, the higher the starting point will be to have to cut from.”
OPEC and non-OPEC oil producers will meet this weekend in Austria’s capital to agree details of the output cut, which targets an overall reduction of around 1.5 million barrels per day. Despite the scepticism around implementing the cuts, analysts said 2017 will likely see a more balanced market.
“Oil markets are on track to tighten over 2017, which will be accelerated by OPEC’s decision to reduce production alongside non-OPEC countries,” said BMI Research. “If effectively implemented, we expect the global oil market will return to balance in Q1 2017.”
Oil production has been outpacing consumption by 1 to 2 million barrels per day since late 2014. As a result of a more balanced market next year, BMI said that “the average annual oil price will be higher in 2017 than in 2016, with Brent at $55 per barrel for the year”. The average 2016 Brent price has so far been $44.47 per barrel.
In a sign that oil markets are becoming increasingly global and less reliant on OPEC, oil major BP in past months has exported almost three million barrels of US crude oil on seven tankers up to 30,000 km far to consumers across Asia/Pacific. Reuters