Tuesday, 3 January 2017

OIL RALLIES TO 18-MONTH HIGH AS OPEC OUTPUT DEAL KICKS IN

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, +1.25%  jumped $1.11, or 2.1%, to $54.82, setting it on track for its highest settlement since July 2015. March Brent LCOH7, +1.23%  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 January 1, 2017 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. What’s more, the higher price level is making shale oil drilling in the U.S. attractive again.”

Oil investors were also looking to China where data that showed the manufacturing sector expanded faster than expected in December. The Caixin manufacturing purchasing managers index rose to 51.9 from 50.9 in November, avoiding contraction territory for a sixth straight month.

Elsewhere in the energy spectrum, February natural gas NGH17, -7.41%  slumped 27.7 cents, 7.4%, to $3.447 per million British million thermal units. February gasoline RBG7, +0.16%  climbed 2.1 cents, or 1.3%, to $1.693 a gallon, while February heating oil HOG7, +0.17%  traded at $1.744 a gallon, up 1.6 cents, or 0.9%. (Market Watch)