Published: Wed, January 18, 2017
Economy | By Melissa Porter

Oil Prices Jump as Dollar Sags, Saudis Reiterate Commitment to Production Limits

Saudi Oil Minister Khalid al-Falih, the de facto leader of the OPEC, touted the impact of the cartel's production cut pact with major non-OPEC producers.

The U.S. recently raised this year's output estimate, although production in China is forecast to continue its decline. "We don't want to create a shortage or squeeze".

Birol said he now expects oil markets to rebalance during the first half of 2017.

The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd from January 1 in an attempt to clear global oversupply that has depressed prices for more than two years.

However, his comments were not assessed as a totally positive as he said producers are unlikely to extend the agreement beyond six months.

Traders also expect OPEC data this week that will give fresh indications on supply and demand.

"U.S. shale is coming back, but it isn't roaring back at current prices of $50 to $55 a barrel", BP's Dudley said.

"U.S. unconventional has increased about half a million barrels on a $50 base, whereas two years ago it was unthinkable oil production in the USA would increase at $50". In 2014, when oil prices collapsed, shale oil was considered expensive.

Saudi Arabia is the world's seventh largest oil consumer, according to the 2016 International Renewable Energy Agency (IRENA) report on renewable energy market analysis in the Gulf Council Countries (GCC) region.

Speaking earlier this month, he said: "We are committed to expanding renewables, we are committed to turning Saudi Arabia into a solar powerhouse".

"Cuts by OPEC and non-OPEC countries have just started and it will take some time for them to filter through", said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.

OPEC is well aware that the increase in crude prices will cause USA production to increase, according to Martin Pelletier, a portfolio manager with Trivest Wealth Management in Calgary.

"I expect the USA shale oil will go back to increasing production this year", Birol said.

The kingdom produces very little renewable energy, representing less than 1 percent of the total produced, but under an economic reform programme approved by King Salman past year, it targets renewable energy contributing 3,450 megawatts to the national energy mix by 2020, equating to 4 percent of energy use in the kingdom.

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