By Nigar Abbasova
World oil prices plummeted on January 5 as the traders started to doubt ability of major producers to fully follow their output reduction pledges.
Benchmark Brent crude oil was down 15 cents a barrel at $56.31 by 0900 GMT (5.00 a.m. ET). U.S. light crude oil was down 10 cents a barrel at $53.16. Both contracts rose by around 2 percent on Wednesday, Reuters reported.
The price of OPEC basket of thirteen crudes stood at $52.71 a barrel on January 4, compared to $53.13 the previous day.
The OPEC and non-OPEC landmark deal to cut production by almost 1.8 million barrels a day in 2017 is aimed to drain a worldwide glut that has weighed on prices for more than two years.
But some investors suspect the cartel may not cut production as much as it has promised, keeping stockpiles high, while January is deemed to be critical month to check the compliance.
Analysts say that that 100 percent compliance is something “out-of-reach”, expecting a broad compliance of about 80 percent. Also, risks related to non-OPEC members and a stronger USD, which earlier reached a 14-year high against a basket of currencies, complicate the success of the deal even further.
Despite the worries, certain countries have already demonstrated their commitment to reduction pledges lifting expectations that the producers will comply with the deal.
Saudi Aramco has started talks with customers globally to discuss possible cuts of 3 percent to 7 percent in February crude loadings to comply with OPEC production cuts, four sources with knowledge of the matter told Reuters on January 5.
Under the output cut deal, Saudi Arabia, the world's biggest oil exporter, agreed to cut output by 486,000 barrels per day (bpd), or 4.61 percent of its October output of 10.544 million bpd.
Previously, Venezuela, an OPEC-member hugely affected by price shocks, confirmed that it will cut production by 95 000 barrels a day.
OPEC’s second-largest producer, Iraq also has started implementing measures to reduce national oil output in line with the deal. The country is currently considering several options to implement the reduction, including cuts from Kirkuk oilfield, southern fields being developed by oil majors or other state-run areas.
Kuwait also lifted expectations that producers will comply with the deal after its state-owned oil producer said it would cut output in the first quarter. The OPEC-member is expected to reduce output by 131,000 barrels per day.
Meanwhile, an OPEC committee meeting to monitor compliance with the agreement, which is scheduled for January 21-22 in Vienna, is expected to provide evidence that the quotas are respected, while the prices are likely to remain volatile till the gathering.
In the United States, crude prices were firmer than on international markets, supported by strong vehicle sales and a report of falling commercial crude stockpiles.
American Petroleum Institute (API) data showed a reduction of some 7.4 million barrels in U.S. crude inventories, which stood at 482.7 million. The focus is now on Energy Information Administration (EIA) inventory numbers, which are also expected to show a similarly large drop in crude inventories.
Besides, WTI was buoyed by U.S. car and truck sales data, which was 3.1 percent up in December hitting a record 17.55 million overall in 2016.
Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova
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