Oil production down
The price of oil both Crude and Brent today is gaining in value. The increase in price already exceeded 2% but in last minutes slightly gives back the gains. Thanks to today’s growth price of oil achieved levels which had not been seen for 1,5 year (from July 2015).
The immediate cause of price increase is the information that Kuwait began to reduce supply of oil. This happened due to negotiated at the turn of November and December contracts to reduce production by OPEC countries and the oil producers outside OPEC. Under its provisions, since January 2017, the production of crude oil is to be reduced by OPEC to 32.5 million barrels per day. In total, it will reduce production by about 1.8 million barrels of oil.
Hans van Cleef, senior energy economist at ABN AMRO Bank commented on the situation: “The first signals indicate that cutting oil production from OPEC and non-OPEC raises hopes that the global oversupply will decline.”
Together with the signing of the agreement was established group, which aims to monitor the implementation of the agreement. At the end of January will be the first meeting of that group, and perhaps we will then know effects of current production cutbacks.
Threats to demand
A factor that may soon spoil the mood of bulls on the oil market is implementation of the agreement by Russia and Iraq. Negative signals such as lack of production restrictions flowing from these countries can cause rapid movement of oil prices in the opposite direction. However, at least in the initial period it is expected that no one will break out from the agreement.
At this time, when a large part of oil producers limit their production (trying to remove excess oil from the market) US increases the extraction of oil from shale. For several weeks, the number of oil from shale is growing and has now reached the annual maximum. If such a trend would continue Saudi Arabia may terminate the agreement on reducing oil production, not to support sales of American oil.
Chart Brent
Chart Crude oil
