Oil rises 2% on Saudi Arabia, OPEC cuts

Oil prices rallied yesterday amid signs that the Organisation of Petroleum Exporting Countries (OPEC’s) production cuts are taking hold.

Brent crude rose two per cent to $62.74 a barrel. The global benchmark was trading above $63 a barrel at its session highs,  putting it on track for its highest close since late November. West Texas Intermediate, the US marker, was up 1.9 per cent at $53.38 a barrel.

Nigeria, Africa’s largest oil producer has $60 per barrel oil benchmark for this year’s budget. Analysts say a rise in oil prices is good for the country that sank into recession last year as a result of sharp dip in oil prices.

In its monthly report released yesterday, OPEC said its crude output fell 797,000 barrels per day (bpd) in January compared with the prior month. The supply cuts, which also include Russia and nine other non-OPEC producers, took effect on January 1.

Saudi Arabia’s Energy Minister, Khalid al Falih, told the Financial Times that the kingdom would reduce production to about 9.8million bpd in March, down from a record high of 11.1million bpd in November.

Oil descended into a bear market in November, a swift drop from four-year highs seen in October, as traders grew worried over strengthening US production and an outlook for softer global fuel demand. OPEC supply cuts, coupled with US sanctions on Iran and Venezuela, have eased concerns of a glut. But weak economic data out of China — the world’s second-largest economy — has continued to stoke expectations that demand is on the decline.

Brent has gained 16.7 per cent since the start of this year, while WTI has risen 17.5 per cent. Later yesterday, the US Energy Information Administration, was scheduled to release its latest short-term energy outlook, and the American Petroleum Institute will release a weekly report on domestic inventories.

The EIA has estimated that US production will average 12.1million bpd, which would mark a new record. The market is also closely following trade developments with US and Chinese officials meeting in Beijing this week to continue negotiations.