Oil starts new year higher as Kuwait delivers on Opec output cut

Oil climbed for the first time in three years in 2016 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on an output cut plan.
Oil climbed for the first time in three years in 2016 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on an output cut plan.PHOTO: AFP/GETTY IMAGES

HONG KONG (BLOOMBERG) - Oil advanced after the biggest annual gain since 2009 as output cuts by Kuwait signaled Opec and other producing nations started trimming production to stabilize the market.

Futures rose as much as 0.9 per cent in New York on Tuesday (Jan 3) after increasing 45 per cent last year. Opec member Kuwait has cut output by 130,000 barrels a day to about 2.75 million a day, Al-Anba newspaper reported, citing Kuwait Oil Co chief executive officer Jamal Jaafer.

Oil climbed for the first time in three years in 2016 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on an output cut plan, effective Jan 1, to reduce bloated global inventories. In the US, the world's biggest consumer, crude stockpiles remain at the highest seasonal level in more than three decades.

"It's understood that countries like Kuwait, who are close to Saudi Arabia, are expected to diligently implement the output cuts, but it's those nations such as Iraq and Russia that are the ones the market is mostly concerned about," said Hong Sung Ki, a Seoul-based commodities analyst at Samsung Futures Inc. "Once oil reaches US$60 a barrel, increasing rigs in the US will be the biggest factor that will limit oil from rising further."

Drillers targeting crude in the US added active rigs for a ninth week, boosting the number to the highest in about a year, according to data from Baker Hughes on Friday.

West Texas Intermediate for February delivery gained as much as 48 cents to US$54.20 a barrel on the New York Mercantile Exchange and was at US$54.05 at 1:30pm in Hong Kong. There was no trading on Monday because of the New Year holiday. Total volume traded was about 42 per cent below the 100-day average.

Brent for March settlement was 36 cents higher at US$57.18 on the London-based ICE Futures Europe exchange. Prices climbed 52 per cent last year, the most since 2009. The global benchmark traded at a premium of US$2.18 to March WTI.

Opec nations and non-members including Russia and Mexico have agreed to trim output by about 1.8 million barrels a day. Iraq will start implementing cuts by reducing heavy and medium grades, the nation's oil minister Jabbar al-Luaibi told Kuwaiti daily al-Jarida.

"If we see ongoing evidence of the production cuts, it will have a positive impact on the market," said Ric Spooner, a chief market analyst at CMC Markets in Sydney. "A big factor to watch over the coming months will be the response of shale oil to the supply cuts."