Oil Rises on OPEC Start of Production Cut Deal

Oil futures moved sharply higher on Tuesday on hopes OPEC’s deal to cut production that set in on Sunday will help to stabilize the market in 2017.

February West Texas Intermediate crude CLG7, -1.14%  jumped $1.11, or 2.1%, to $54.82, setting it on track for its highest settlement since July 2015.

March Brent LCOH7, -1.14%  on the ICE Futures exchange in London climbed $1.17, or 2.1%, to $57.99 a barrel.

The sharp gains come after a solid 2016, when the U.S. benchmark futures contract saw a nearly 45% calendar-year rise, its biggest annual rise since 2009. The advance was fueled in part by expectations members of the Organization of the Petroleum Exporting Countries and other major producers will abide by an agreement to curb output. The output quotas kicked in on Jan. 1 and market observers are now waiting to see if both OPEC and non-OPEC producers will stick to their part of the deal.

Prices have been “supported by early indications of countries following through on OPEC cut commitments, as Oman and Kuwait announced reduction plans,” said Robbie Frasier, commodity analyst at Schneider Electric, in a Tuesday note.

“Indications of cheating—a major issue in past deals—would prove to be a significantly bearish factor,” he said. “While every country will be under the market’s microscope, Iran, Iraq, Saudi Arabia, and Russia remain the key countries to watch.”

But analysts Commerzbank said that “firm indications of whether OPEC is really serious about cutting production won’t be apparent until the end of the month when the production surveys for January are released. Until then, prices could remain at their exaggerated level.”

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza