Oil prices rose on Thursday after Saudi Arabia started talks with customers about a reduction in crude sales to support a plan by the Organisation of Petroleum Exporting Countries (OPEC) to lower global supply. The organisation promised in November to cut output to help prop up prices.
Under the deal, Saudi Arabia agreed to cut output by 486,000 barrels per day (bpd) or 4.61 per cent of its October output of 10.544 million bpd.
“Aramco is approaching all its customers for possible cuts from February and discussing likely (supply) scenarios,” one source told media referring to state oil giant, Saudi Aramco.
“Nothing is confirmed yet,” the source said, adding that the scenarios were for cuts of 3-7 per cent.
Investors have been suspicious that OPEC may not cut as much as promised, but several sources told media on Thursday the world’s biggest oil exporter intended to lower exports to comply with the OPEC reductions.
Benchmark Brent crude oil rose to approximately $57 by 1440 GMT. US light crude was up 45 cents a barrel at $53.71.
In another sign of compliance with the cuts, Abu Dhabi National Oil Company (ADNOC) has scheduled maintenance at oilfields for March and April, although it was not immediately clear how much exports might fall.
Oil prices also found support from an American Petroleum Institute report showing US crude inventories fell 7.4 million barrels last week.
US government figures on inventories were due to be published at 11 a.m. EST (1600 GMT) on Thursday.
A media survey forecast the government report would show US crude stocks declined by about 2.2 million barrels in the week to December 30, 2016.
Oil prices had hit highest level in 18 months on the first trading day of the year on Tuesday signalling bright prospects for the funding of the nation’s 2017 budget, which pegged its oil price budget benchmark at $42.5 per barrel.
Brent futures were up 46 cents, or 0.8 per cent, at $58.37 a barrel by 11:07 am EST (1607 GMT). on Tuesday. US West Texas Intermediate (WTI) crude was up 46 cents or 0.9 per cent at $54.18 per barrel.
Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, had in December 2016, said the price of oil is expected to be about $60 per barrel in 2017.
Kachikwu made the assertion while speaking at a Bloomberg markets summit in Abu Dhabi on December 7, 2016.
“I am hoping that we are heading towards $60 per barrel and I don’t see higher than that,” said Kachikwu when asked about the expected oil price, one year down the line next December.
The Minister also admitted that the price range of $60 per barrel would be beneficial to both consumers and producers.
Recall that OPEC, at its 171st meeting at its headquarters in Vienna on November 30, 2016, reached a landmark deal that would effectively cut production by about 1.8 million barrels per day (mbpd) or about 4.5 per cent of current production, to 32.5 mbpd.
The November agreement followed earlier meetings held in September in Algeria where each member country reached a consensus on the need to cut production.
The 171st meeting was the first time since 2008 that OPEC would be accomplishing such a feat, which is expected to tackle the key challenge of low price in the international market, which has affected the global economy with most OPEC member countries, including Nigeria, feeling the impact.
Member countries at the meeting had agreed on the deal where considerations of the cartel offered to Iran, Libya and Nigeria would mean that in 2017, total production might likely increase, even as other members seek to cut output in the first quarter of next year.
In the agreement where the countries are exempted from the production, Nigeria was accommodated due to some of the oil and gas facilities damaged by militant attacks in recent months.
Kachikwu had led Nigeria’s delegation at the meeting and the negotiation saw Nigeria get an exemption from the production cut. The concession was given as the country has been through production challenges recently due to the vandalism of oil and gas infrastructure, which has negatively affected the country’s ability to produce oil optimally in the recent past.