Published: Thu, December 13, 2018
Money | By Wilma Wheeler

Opecto Cut Production To Boost Oil Prices

Opecto Cut Production To Boost Oil Prices

Russian Federation plans to cut its oil output by 50,000 to 60,000 bpd in January, its energy minister said on Tuesday, much less than its target under a global production deal reached last week.

The Libyan outage followed last week's decision by the Organization of the Petroleum Exporting Countries and some non-OPEC producers including Russian Federation to cut supply by 1.2 million barrels per day (bpd) for six months from January 1.

Energy Secretary Perry made a two-stop Middle East visit in the weekend, and held bilateral meetings with al-Falih, and the CEO of Saudi Aramco and other energy industry stakeholders operating in Saudi Arabia.

"The more OPEC+ tries to support prices by withholding oil from the market, the more they give the USA shale sector an out from rationing supply growth themselves", Citi said in a research note written by a team led by Ed Morse, the firm's global head of commodities. "OPEC+ may consider restoring production partly or fully to address the situation", it said.

"Secretary Perry advocated for the expansion of joint partnerships with the United States as Qatar seeks to grow its LNG operations around the world", the Department of Energy said.

After the news that supply would be cut, the price of oil rallied above $60 dollars a barrel, where it has remained, with Brent Crude trading at around $61 on Wednesday, while WTI Crude sits a touch over $52. Only the OPEC + countries could support the oil market.

Undermining the supply cuts is soaring output in the United States, where crude production C-OUT-T-EIA has hit a record 11.7 million bpd.

The cartel's allies, who include Russian Federation and nine other non-OPEC oil producing nations, will also contribute to the deal by trimming their output by 400,000 bpd over the same period.

The market will get a peak at US oil inventories this afternoon when the American Petroleum Institute (API), an industry group, releases a report at 4:30 p.m. EST.

Crude output has surged in the United States, set to end 2018 as the world's top oil producer, ahead of Russian Federation and Saudi Arabia.

"Surveys ahead of the report point to a lower, but still healthy, reduction of 3.5 million barrels".

In addition to American shale producers firing on all cylinders, the impact of higher inventories in countries like Iraq and Brazil on market fundamentals is something the Saudi-Russia cut may not be able to fully counter.

The production cut will tighten the oil market by the third quarter of 2019, and boost Brent prices back to more than $70 per barrel.

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