What if OPEC will not cut oil production in 2017?

What will happen of OPEC will not cut oil production, as it has promised?John Kilduff from Again Capital sees disruptive consequences. 

30 December, AtoZForex Oil prices are headed for the biggest annual percentage gain in almost 8 years. Markets are nervously awaiting the first oil cuts from the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producers.

OPEC oil cut deal drives oil prices up  

On the 30th of November, OPEC and non-OPEC oil countries met in Vienna in order to finalize the oil cut deal. The resulting agenda totaled at 1.8 million barrels per day oil cuts. Markets are seeing the first agreement results starting from the 1st January.

US West Texas Intermediate (WTI) crude futures were trading at $54.00 at 0746 GMT, up 23 cents. Brent crude oil futures for March delivery gained 31 cents to $57.16.

So far, this year, WTI futures have advanced nearly 46 percent, where Brent futures climbed about 53 percent. Such good results appear the best since the 2009 oil rally, when WTI and Brent advanced 71 and 78 percent, respectively.  In accordance with planned oil output cuts, OMAN informed some of its clients that it intends to cut term allocations by 5 percent in March. However, the country did not reveal the fact whether the decrease in supply will continue after that.

What if OPEC will not cut oil production in 2017? 

Moreover, the market apparently ignored an unexpected build in the US crude supplies. According to the report from the US Energy Information Administration (EIA), US crude stockpiles rose 614,000 barrels in the week to December 23rd. However, the actual rise was significantly lesser than the American Petroleum Institute (API) has predicted. The report from API forecasted 4.2-million-barrel build in US crude oil stocks in the same period. Barclays has commented:

“Today’s Department of Energy report was positive for light products due to draws in gasoline and distillate inventories compared to consensus’ build expectations.”

Speculators are anxiously waiting for the first hikes in oil prices, thus setting up a negative outcome in case OPEC cuts disappoint. John Kilduff, Again Capital founding partner, has stated:

“The boat is loaded to one side in the market right now. Shorts have covered. People have piled in from the long side, waiting for these cutbacks to come through. If they don’t, there’s going to be big punishment in this market.”

Mr. Kilduff also stated that crude demand might get a support from Donald Trump’s policies that are supposed to result in the US growth.  Yet, he stated that he does not believe this further escalating to a higher demand in China.

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