Published: Sat, February 11, 2017
Finance | By Laverne Griffith

Oil up on widespread OPEC deal compliance, US rig count rises

Oil up on widespread OPEC deal compliance, US rig count rises

The OPEC deal, agreed late past year, requires 10 member states to reduce their collective output by 1.2 million barrels per day (bpd) starting from January 1.

Oil futures spiked on Friday (10 February), extending overnight gains after the International Energy Agency (IEA) said Opec producers were close to reaching their production cut target for 2017 outlined at their last meeting. Meantime, these efforts were offset by increases from Iran, Nigeria and Libya that were permitted under the terms of the agreement. The five-member committee, led by Kuwait, will use as many as six sources of data to measure output, he said. Hedge funds and other investors have clearly overbought, the EIA expects shale to boom back to 9.5 million barrels per day (mbd) in 2018, US stocks rose by a massive 14 million barrels last week, and OPEC producers not bound by quota (Libya and Nigeria) are pumping more volumes. U.S. producers are taking advantage of higher prices by boosting output to the highest level since April, a dynamic the IEA said is capping prices in the mid-$US50s.

The IEA has also increased its forecast of non-OPEC countries' oil production by 100,000 barrels daily to 58 mln barrels per day in 2017.

Russian Federation said it would phase in its share of the cut gradually rather than in the first month of the agreement and in January lowered supply by 100,000 bpd.

At strictly technical level, Iran participates in the operation only considering the strategic situation in the Greater Middle East, while it would even need to increase its oil supply by at least one million barrels per day so as to regain its position and recover from the long period of sanctions.

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Commerzbank highlighted a recent surge in United States crude imports as a reason for doubt, while consultancy Petromatrix said "high compliance from OPEC was expected for the starting months", but more strenuous efforts by Saudi Arabia to protect its market share could be expected.

While the pact at OPEC initially caused a rally of 20% in the price of oil, gains have faltered since, on concern that shale drillers in the USA would revive their output and thus undo the efforts of OPEC.

Another increase in US oil rigs limited gains in the afternoon. BMI Research noted that combined Nigerian and Libyan crude output rose by 200,000 bpd in January and that another 600,000 bpd could potentially be added over the next 6 months if unused capacity is opened up.

But Iraq complied to about half of its agreed cuts and Venezuela-which was first to campaign for an output cap-by a meagre 18%.

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