Oil prices jumped on the first trading day of the year following supportive comments from Saudi Arabia, Kuwait and Oman, although the focus remains on whether major oil producers will deliver on pledges to curb output.
North Sea Brent crude futures rose by more than 2 per cent to US$58.11 per barrel, having hit $58.38 during the session, their highest in 18 months.
Oil has gained more than 25 per cent since the end of November, following deals by Opec and a group of other producers led by Russia agreeing to cut their output by about 1.8 million barrels per day (bpd) over the first six months of this year.
Although the signs so far have been positive, a test of the deal’s credibility will come later this month, when a compliance committee set up by Opec and non-Opec producers last month, to be chaired jointly by oil ministers from Kuwait and Russia, is scheduled to meet on January 22 at the Opec headquarters in Vienna.
On Monday, a statement issued following a meeting of Saudi Arabia’s cabinet chaired by King Salman, included a line confirming “the importance of stability, coordination, more cooperation, and commitment … to apply the agreement on reducing production reached in November last year”, referring to the Opec deal, which put the burden of cuts heavily on Saudi Arabia and its closest allies in the Arabian Gulf.
Also on Tuesday, the Kuwait Oil Company chief executive, Jamal Jaafar, was quoted by Kuwaiti newspaper Al Anba as saying the state oil company had already complied with its commitment to reduce output by 130,000 bpd to about 2.75 million bpd.
At the same time, Ali Abdullah Al Riyami, the director general of oil and gas marketing in Oman’s oil ministry, said on local television that his country, which is not a member of Opec, had met its obligation to cut 45,000 bpd from its previous daily output of 1 million barrels.
The UAE and Iraq, other key Gulf Opec members, have previously indicated to customers that they will receive less crude oil over the next few months.
As part of the deal, Iraq has committed to cut 210,000 bpd, despite its difficult financial situation and the internal conflict it is dealing with. The UAE has committed to cut 139,000 bpd even as it continues to move ahead with plans to raise production capacity from 3.1 million bpd to 3.5 million bpd by next year.
Saudi Arabia bears the heaviest load of the 1.2 million bpd Opec share of the cuts, agreeing to cut by more than 480,000 bpd to just above 10 million bpd, having reached a record in August of more than 10.6 million bpd.
But a big unknown is the non-Opec members, who have never previously been involved in a credible deal to cut output.
Russia is key, having agreed to cut 300,000 bpd from its post-Soviet era record output of more than 11.2 million bpd in October, although it has said it will do that gradually over the six-month period.
Apart from Oman, it is not clear where the remaining 213,000 bpd of the total 558,000 bpd cuts the non-Opec producers agreed in December will come from. This group includes Azerbaijan, Kazakhstan, Mexico, South Sudan and a few other relatively small exporters.
An Opec source said the January 22 compliance committee meeting will discuss these issues as well as technical details about how to monitor cuts, a task that has proven difficult even within Opec in the past.
The oil ministers from Venezuela and Oman are expected to be the other members of the committee.
amcauley@thenational.ae
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