By Adewale Sanyaolu with agency reports
Nigeria may begin to reap from soaring oil prices as crude prices shot to $58, its highest level since 2015 on Monday after OPEC reached first output cut deal since 2001 .
According to the Minister of State for Petroleum, Dr Ibe Kachikwu, oil prices at $60 a barrel would be ideal for Organisation of the Petroleum Exporting Countries (OPEC), as higher levels risk sparking a recovery in competing supplies from the US.
On Saturday, producers from outside OPEC, led by Russia, agreed to reduce output by 558,000bpd, short of the target of 600,000bpd but still the largest contribution by non-OPEC ever.
That followed the November 30 deal by OPEC to cut output by 1.2 million bpd for six months from January 1, 2017, with top exporter, Saudi Arabia, cutting around 486,000bpd to curb the supply glut that has dogged markets for two years.
They jointly reduced output in order to rein in oversupply and prop up the market.
Brent sweet crude futures, the international benchmark for oil prices, soared to $57.89 per barrel in overnight trading between Sunday and Monday, its highest level since July 2015.
US West Texas Intermediate (WTI) crude futures also hit a July 2015 high of $54.51 a barrel.
With the deal finally signed after a year, the market’s focus will now switch to compliance with the agreement.
ANZ Bank said that Saudi Aramco, Saudi Arabia’s state-controlled oil company, had informed customers that their allocations would be reduced in January 2017, in line with the recent OPEC production cut agreement.”
Oversupply has dogged markets for over two years and pushed the economies of many oil exporting countries into crisis.
Crude futures have rallied sharply, with US futures gaining 23 per cent since the middle of November as optimism that an agreement would be reached started to grow. On Monday, US crude futures CLc1 were up $1.82 at $53.32 a barrel, a 3.5 per cent gain, as of 11:19 am ET (1619 GMT).
“Right now, the market is kind of feeding on itself,” said Gene McGillian, Manager of Market Research at Tradition Energy in Stamford, Connecticut.
“The market could push another $1 to $2 up to $55, and Brent could go to about $60, but at that point there are some concerns that are going to start to cap the rally.”
Brent crude futures LCOc1 were up $1.94 at $56.27 per barrel, a 3.5 per cent rise, after hitting a session peak of $57.89, the highest since July 2015.
For the deal to be effective, all parties must stick to their word. Higher prices also raise the chances of other producers boosting output, particularly US shale operators, where rig counts have grown steadily in recent months. US production remains about one million bpd below its peak of 9.6 million reached in 2015, according to US Energy Department data.