The price of a barrel of West Texas Intermediate, the American crude standard, rose to its highest since last July after Saudi Arabia said it was willing to reduce production more than earlier agreed and non-OPEC producers, including Russia previously pledged to pump less next year.
WTI (CL1) was at $52.71 on Monday evening in afterhours trading on the Nymex, after having closed at $52.83 in New York., it highest since January 15, 2015.
Saudi Arabian Energy Minister Khalid Al-Falih had said Saturday that the kingdom, the world's largest oil exporter, would “cut substantially to be below” the amount agreed to last month with members of the Organization of Petroleum Exporting countries (OPEC). The cartel had agreed to reduce production by 1.2 million barrels a day across the entire group.
His statement came after the deal between OPEC and 11 non-members on November 30th who agreed to cooperate and reduce their output by 558,000 barrels a day in 2017 in a concerted effort to raise prices by limiting the supply of oil on the world market. It was the first pact between the competing groups in 15 years. Together the two groups produce about 60 percent of the globe's crude oil.
Saudi Arabia had, in 2014, adopted a policy of unlimited OPEC production in an effort to drive down the price of oil and eliminate competition from comparatively expensive North American shale oil producers.
The attempt was largely a failure, which this agreement tacitly admits. Shale oil remains a large component of U.S. and Canadian production and one that is set to rise as prices recover.
“I can tell you with absolute certainty that effective Jan. 1 we’re going to cut and cut substantially, to be below the level that we have committed to on Nov. 30,” Al-Falih said Saturday in Vienna as reported by Bloomberg. The Saudi minister indicated that the country was willing to reduce output below the 10 million barrels a day it has pumped since March 2015.
Al-Falih and the Russian Energy Minister Alexander Novak also revealed, according to Bloomberg, that the agreement has been in the works for nearly a year, with the parties meeting in secret multiple times. Saudi Arabia had always demanded that any OPEC cuts be met with reductions or freezes from other suppliers, primarily Iran and Russia. .
U.S. and Canadian oil producers have never been part of the price support effort and are free to pump as much oil as they can sell.
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