LONDON, Jan 3, (Agencies): Oil prices hit 18-month highs on Tuesday, the first trading day of 2017, buoyed by hopes that a deal between OPEC and other big oil exporters to cut production, which kicked in on Sunday, will drain a global supply glut.
Benchmark Brent crude jumped more than 2 percent to a high of $58.37, up $1.55 a barrel and its highest since July 2015. By 1430 GMT, Brent had eased to $58.12, up $1.30.
US light crude oil hit an 18-month high of $55.24, up $1.52 a barrel, also its highest since July 2015, before slipping to around $55.00.
Oil futures exchanges were closed on Monday for New Year public holidays.
Jan 1 marked the official start of a deal agreed by the Organization of the Petroleum Exporting Countries and other exporters such as Russia to reduce output by almost 1.8 million barrels per day (bpd).
“First signals suggest the OPEC and non-OPEC production cuts are raising hopes that the global oil oversupply will diminish,” said Hans van Cleef, senior energy economist at ABN AMRO Bank N.V. in Amsterdam.
Ric Spooner, chief market analyst at CMC Markets, agreed:
“Markets will be looking for anecdotal evidence for production cuts,” he said. “The most likely scenario is OPEC and non-OPEC member countries will be committed to the deal, especially in early stages.”
Investors will be watching OPEC very closely to see whether the group’s members keep their promises to reduce production:
“If 2016 was the year of words, 2017 must be the year of actions,” said Tamas Varga, senior oil analyst at London brokerage PVM Oil Associates.
Libya, one of two OPEC countries exempt from the output cuts, has increased its production to 685,000 bpd, from around 600,000 bpd in December, an official at the National Oil Corporation said on Sunday.
Elsewhere, non-OPEC Middle Eastern oil producer Oman told customers last week that it would cut its crude oil term allocation volumes by 5 percent in March.
Non-OPEC Russia’s oil production in December remained unchanged at 11.21 million bpd, near a 30-year high, but it was preparing to cut output by 300,000 bpd in the first half of 2017 in its contribution to the accord.
Officials from Oman and Kuwait told local media they’re cutting oil production in January, fulfilling pledges that they and 22 other producers made on Dec 10. Prices also advanced as China’s manufacturing purchasing managers index stabilized near a post-2012 high, signaling demand may be supported in the world’s second-biggest oil user, according to a Bloomberg report.
Oil climbed for the first time in three years in 2016 as the Organization of Petroleum Exporting Countries and 11 other nations agreed to cut output starting Jan 1 in an effort to reduce bloated global inventories. Prices, which eased in late December, are surpassing the peaks reached just after the deal was finalized, as Kuwait and Oman give the first signs the curbs are being implemented.
“The new year sees the start of the output cuts that were agreed between OPEC and some non-OPEC producers,” said Hamza Khan, head of commodities strategy at ING Bank NV in Amsterdam.
OPEC member Kuwait has reduced output by 130,000 bpd to about 2.75 MMbpd, Al-Anba newspaper reported, citing Kuwait Oil Co CEO Jamal Jaafer. Oman is cutting 45,000 bpd from 1.01 MMbpd, the Oil Ministry’s Director of Marketing Ali Al-Riyami said on Oman TV.
OPEC nations and non-members including Russia and Mexico have agreed to trim output by about 1.8 MMbopd. Iraq will start implementing cuts by reducing heavy and medium grades, the nation’s Oil Minister Jabbar al-Luaibi told Kuwaiti daily al-Jarida.