Crude oil futures are on a tear in Asia, jumping around 5% following news that some non-OPEC members will join their OPEC compatriots in reducing output levels in 2017.
Front-month Brent Crude futures — the global benchmark price — have jumped by 4.82%, sitting at $US56.95 per barrel.
As seen in the chart below, that’s a level that’s not been seen since July 2015.
It’s now rallied over 30% from mid-November, extending the gain from the multi-decade low see earlier this year to over 110%.
The gains are being driven by an agreement from non-OPEC crude producers — including Russia — to cut production levels by 558,000 barrels per day, or around 0.6% of global supply, next year, following the 1.2 million barrels per day reduction announced by OPEC at the group’s November 30 meeting.
“The non-OPEC commitment is lower than the 600kb/d [thousands of barrels per day] originally outlined in OPEC’s November 30 deal, but it is still a significant step forward for OPEC and non-OPEC cooperation to control supply,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.
“Russia has agreed to cut production by 300kb/d from 30-year highs, while Mexico, Oman, Azerbaijan and Kazakhstan pledged to reduce output by 100kb/d, 40kb/d, 35kb/d and 20kb/d respectively.
“The remaining 63kb/d of oil production cuts will be shared amongst Bahrain, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan,” he says.
Providing added impetus to the rally, Saudi Arabia also flagged the potential to make deeper cuts to production levels already announced in late November.
“Saudi Arabia even suggested that it will cut output even more than it is required to do so next year, showing that the historic deal has credibility,” says Dhar.
“With around 1.8% of global supply set to be removed from oil markets early next year, markets may now come into balance by early as 2Q17 and keep prices sustainably above $US50/bbl in 2017.”