Published: Wed, December 14, 2016
Global Media | By Abel Hampton

Oil Hits Its Highest Price Since Mid

Oil Hits Its Highest Price Since Mid

Earlier, they traded as high as US$54.51 a barrel - a level that hasn't been seen since mid-2015.

There was particular surprise as Saudi Arabia, the world's top producer, said it may cut its output even more than it had first suggested at an Organization of the Petroleum Exporting Countries meeting just over a week ago.

After OPEC's deal to reduce production by 1.2 million barrels of oil per day (bopd) in the New Year, a non-OPEC roundtable has agreed to cut its oil output by 558,000 bopd - just shy of its 600,000 barrel target.

US shale oil production is set to rise next year following the rally in prices since OPEC's November 30 meeting in Vienna, according to the International Energy Agency, which had predicted a decline in its previous report.

Crude futures have rallied sharply, with US oil futures gaining 23% since the middle of last month as optimism that an agreement would be reached started to increase. The slide in oil prices and Western sanctions over Moscow's role in the Ukraine crisis have pummelled the Russian economy. US crude futures rose $1.33 to settle at $52.83 a barrel, a 2.6 percent gain, though that was sharply off the day's highs.

Adnoc's cuts will mostly hit Asia, although refiners said they fell within contractual allowances under which Adnoc can alter agreed supply volumes.

"The market is putting a lot of importance on the commentaries coming out of OPEC and non-OPEC (and) the market is giving OPEC the benefit of the doubt that cuts will be implemented and achieved", said Michael McCarthy, chief market strategist at Sydney's CMC Markets. But there are now alternatives to fossil fuel energy, and the world may intensify its drive to adopt these alternatives instead of paying US$140 per barrel of crude again, should prices tick up too much.

Oil's move lower comes after an three session winning streak that sent prices to a new one-year high on Monday.

Oil prices leapt over four per cent in trading overnight following Saturday's landmark agreement between oil producing countries. What's less certain is the degree to which the Fed will take into account United States president-elect Donald Trump's pledges to cut taxes while ramping up spending on infrastructure, fuelling economic growth and inflation.

"This forecast reflects an effective 1.0 million barrels per day (bpd) cut vs. the 1.6 million bpd announced cut and greater compliance to the announced cuts is therefore an upside risk to our forecasts". US production remains about 1 million bpd below its peak of 9.6 million reached in 2015, according to US Energy Department data.

"This signals Saudi Arabia aims to hasten the oil-market re-balancing", said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. "Agile U.S. shale producers will jump back into production on West Texas well before $60 a barrel".

Higher prices raise the chances of other producers increasing output.

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