This past Wednesday saw a drop in oil prices as a result of the consistent doubts as to if the intended crude production cut led by OPEC and Russia could be acute enough to stop the supply bulge that determined markets for the last two years.
The international Brent crude futures (LCOc1) were priced per barrel at {currency}53.76 at 06:45 GMT. This amount was 17 cents, or 0.32 percent, less than their last close.
U.S West Texas Intermediate (WTI) crude futures (CLc1) dropped 24 cents, or 0.45 percent, to {currency}50.70 per barrel.
The oil prices jumped up 19 percent last week following the Organisation of the Petroleum Exporting Countries (OPEC) and Russia announcing that they would cut together the production in the coming year as an attempt to boost up the markets.
Nevertheless, since then doubts have emerged with regards to if the proposed cuts will be significant enough to end the oversupply. After the deal announcement, both Russia and OPEC have reported significant production.
Jeffrey Halley from brokerage OANDA in Singapore said “Due to both OPEC and Russia producing at substantial amounts, the market is perplexed as to how both blocs will be able to comply with the Vienna production cut targets. The point is well-founded, as the more Russia and OPEC produces, then the higher the starting point for the cut to be.”
OPEC and non-OPEC oil producers will convene to meet this weekend in Vienna to agree on the details of the cut in output, which aims at a general reduction of approximately 1.5 million barrels each day.
Regardless of the scepticism surrounding the implementation of cuts, according to analysts, 2017 will probably have a more balanced market.
According to BMI Research, “the oil markets are set to tighten over 2017, that will be increased by OPEC’s decision to a production reduction together with non-OPEC countries. If properly implemented, the global oil market is expected to return to balance in the first quarter in 2017.”
Since late 2014, oil production has been exceeding consumption by 1 to 2 million barrels.
Thanks to a more balanced market in the upcoming year, BMI said that “the average yearly oil price may be higher in 2017 compared with 2016, with Brent at {currency}55 per barrel for the year.”
So far, for 2016, the average price of Brent has been {currency}44.47 per barrel.
An indication that oil markets are becoming more global and less dependent on the OPEC, oil giant BP (LON: BP) in the previous months has exported close to 3 million barrels of U.S. crude oil on seven tankers up to 30,000 km far across Asia/Pacific to consumers.
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