Oil goes past $50/bbl after OPEC cuts production - ANZ

Research Team at ANZ, notes that the brent crude oil prices pushed above USD50/bbl after the group agreed to reduce output to 32.5mb/d.

Key Quotes

“The agreement was reached after Sauid Arabia softened its stance against Iran, which is now allowed to raise output to 3.8mb/d. While this is only about 100kb/d higher than its current output, it was an important factor in the deal being sealed.”

“Saudi Arabia will reduce output by 486kb/d to 10.058mb/d, while Iraq agreed to cut production by 210kb/d (from October levels of 4.69mb/d). The main hurdle remains the involvement of non-OPEC producers. OPEC also called on them to cut production by 600kb/d, with Russia contributing half of that output. For the moment, Russia looks likely to join the agreement. Energy minister Alexander Novak will meet OPEC in the next week or so to thrash out the deal, but will reduce output by 300kb/d if OPEC is successful in limiting its output to 32.5mb/d. The entire agreement is expected to be implemented in January and be in place for 6 months.”

“The issues remain around adherence to the agreement and what the reaction from the rest of the industry is, namely US shale oil. The involvement of Russia and other non-OPEC members remains a wildcard. However, the US shale is what we will be focusing on. With EIA data showing US production increased by 9kb/d to 8.7mb/d last week, there is a real risk that higher prices could reactivate more dormant shale oil. This is the main reason why we don’t expect to see prices surge much higher than USD60/bbl in early 2017.”