Considering the fact that members and non-member states of OPEC had agreed in November 2016 to cut oil production levels as a means of combating global oil glut – agreeing to begin the cut on January 1 this year – the prices of oil rose significantly in the market as trading opened on New Year day, Reuters reports.
To this extent, the international price for brent crude oil rose by 0.55% or 31 cents to reach $57.13 per barrel on Tuesday, while that of West Texas Intermediate (WTI) rose by 0.6% or 32 cents to reach $54.04. The price of brent crude hit $57.89 on December 12, 2016 and that of WTI reached a high of $54.51 last year December 12.
Both OPEC and non-OPEC members had agreed in November to cut oil production capacity by 1.8 million barrels per day. Even Russia, a non-OPEC member had agreed to the deal.
But whether the parties to the agreement will cut oil production levels as generally agreed is not yet known. But industry analysts think events unfolding this month will determine if oil exporting countries will honor the terms of the agreement or not. Already, signs of agreement have made oil prices to rise on January 1.
“The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages,” said Ric Spooner, chief market analyst at CMC Markets in Sydney, Australia. “Markets will be looking for anecdotal evidence for production cuts.”
Libya and Oman are both OPEC members, but both countries are exempted from cutting their daily oil production levels. Due to this exception, Libya raised its production from 600,000 barrels a day in December last year to 658,000 on New Year day. And Oman said it is looking to raise its production capacity by 5% in March this year.
Russia is getting set to cut out 300,000 barrels per day from its 11.21 million barrels per day produced last year as an indication of her readiness to abide by the letters of the November agreement. This is expected to be put into effect by early 2017.
But Tom Kloza, global head of energy analysis at Oil Price Information Service in the United States is pessimistic about the November agreement to cut down on oil production from OPEC and non-OPEC members.
“We’ll see some compliance with the OPEC quotas and the non-OPEC agreement, but it will fade into the second quarter and it may not be there at all in the second half of 2017,” Kloza told CNBC.