Azernews.Az

By Nigar Abbasova

The recently struck landmark deal between OPEC and non-OPEC states to curtail oil output jointly remains fragile due to its high dependence on the compliance of market players to their pledges.

Following a significant profit-taking and hitting of mid-2015 highs, crude prices retreated in the face of concerns on whether the proposed cuts can be maintained, as OPEC's plan to put ceilings on output was undercut by an energy watchdog's assessment on how much the cartel members are currently producing.

The International Energy Agency said on December 13 that it believes the 13-member cartel produced about 34.2 million barrels a day in November, or an additional 500,000 bpd from OPEC's estimate.

Despite the agency raised its forecast for global oil consumption making revisions to its estimate of Chinese and Russian consumption, the predicted OPEC output undercuts expectations for the dramatic changes toward stability.

The price of February futures for the Brent crude oil dropped by 1.04 percent to $55.14 per barrel, while January futures for West Texas Intermediate (WTI) oil recorded a decrease of 1.09 percent to stand at $52.40 per barrel.

Lack of legal binding to deter producers inside or outside the cartel from moving aside of their pledges is among factors that raise doubts and concerns.

With the market still being vulnerable to comments and actions coming from oil producers, Russian Energy Minister Alexander Novak said the realization of output reduction pledges will be implemented on the voluntary basis. The country, which is deemed to be one of the major non-OPEC players plans to cut its production by 200,000 barrels until the end of the first quarter of 2017, while the volume of production in the first half of the next year will amount to 300,000 barrels (in line with the pledge).

Non-supportive data that dragged the prices down also came from the American Petroleum Institute (API), which revealed an unexpected increase of 4.7 million barrels over the week in U.S. crude stocks. The market is also focused on an anticipated U.S. interest rate hike that would likely boost the dollar, making dollar-dependent fuel imports more expensive for countries using other currencies.

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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova

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