Oil Price Rise Falters As Doubts Emerge Over OPEC Cuts

  • Date: 14/01/17
  • Jillian Ambrose, The Daily Telegraph

The oil market’s tentative recovery has hit a setback as niggling concerns over Opec’s plans to cut supply punctured growing market optimism.

The market enjoyed its strongest rally in six weeks on Thursday, taking the price of Brent crude to almost $56.50 a barrel, but as market jitters re-emerged the price tumbled back over $1 to $55.30.

Earlier in the week the market was emboldened by fresh data suggesting deeper than expected oil supply cuts from Saudi Arabia, one of the world’s biggest oil producers, and spurred on by a weaker dollar following president elect Donald Trump’s first press conference.

The Saudis are reported to have exceeded the level of cuts agreed in the landmark supply deal and are producing less than 10 million barrels of oil a day, which suggests a cut of 625,000 barrels rather than the agreed 500,000 barrel slowdown.

An investment note from brokerage Cenkos said: “This would suggest that Saudi is willing to wear the pain of short-term cuts over and above agreed quotas in order to absorb Libyan increases and thus preserve longer-term prices.”

Libya has been exempted from the Organisation of Petroleum Exporting Countries’ supply cuts as the battered North African nation tries to get its industry back on its feet.

Bloomberg Brent crude price chart
Concern over Opec’s deal to erode the global oversupply of oil has dragged the market price back below the previous close of $56 a barrel  CREDIT: BLOOMBERG

But traders still harbour concerns over whether the  deal struck late last year between Opec and the world’s largest producers outside of the cartel will stick.

Saxo Bank’s Ole Hansen said the short-lived price rally had been followed by a sell-off as traders tried to make sense of a range of supply news.

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