OPEC has significantly improved compliance with its supply cuts agreement, affecting Brent crude oil prices projection of near two-year highs on Wednesday.
U.S. West Texas Intermediate (WTI) crude stood at $54.65 a barrel or 0.5 percent, an increase of 27 cents and close to February highs. Since lows in June 2017, it has been increased almost 30 percent.
The international benchmark for oil prices, Brent futures, projected $61.16 per barrel at 0045 GMT, up 22 cents, translating to 0.36, since their last close. The figures were near the $61.41 a barrel two-year high from Tuesday’s intraday trading.
The Organization of the Petroleum Exporting Countries (OPEC) and Russia led an effort which fueled bullish sentiments this year. This is to hold back about 1.8 million barrels per day in oil production in order to tighten markets.
OPEC’s October output slipped by 80,000 bpd to 32.78 million bpd, its pledged supply increased to 92 percent as it put adherence from September’s 86 percent. Supplies have significantly reduced since the first half of the year where compliance was low.
The Cost of Cuts
Russia has been cutting its output by around 300,000 bpd as it has also seen to be in compliance. The figures show that it is below October 2016 levels of 11.247 million bpd. However, it is unclear how OPEC, Russia and the other countries that are part of the withholding of production, will exit the supply-cutting agreement.
The global oil market shows that it has been slightly undersupplied during the past quarters, according to trade data, resulting in fuel inventory declines. Traders suggest that the market looks slightly undersupplied tackling next year, while factoring in supply disruptions in Iraq that is caused by the fighting and results of the hurricanes.
The pact lasts until March 2018, with Saudi Arabia and Russia support prolonging the agreement to potentially run all of next year.
After the possibility of the participants’ return to full capacity and the U.S. output also growing further, a supply glut could make a comeback.
“We could rapidly … go from a predicted deficit of around 260,000 barrels to a surplus of close to 1.5 million barrels. Prices would undoubtedly collapse as a consequence,” stated Matt Stanley, a fuel broker at Freight Investor Services.
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