Oil Prices Surge To Near 2017 Highs As OPEC Output Falls In October

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OPEC Output Falls by 80K barrels Per Day

Oil prices continued to rise over the first part of the week fuelled by the latest data which shows that production among OPEC members fell over October. A survey compiled by Reuters shows that oil output among the OPEC bloc declined by 80k barrels per day over the last month mainly driven by a fall in exports from northern Iraq.

The fall in exports from Iraq topped 120 barrels per day over the month as Iraqi forces re-established control of oil fields which had been in the control of Kurdish fighters since 2014. Crude exports from southern Iraq also fell over the first three quarters of the month before recovering in the last week due to a plan put in place to offset the decline in flows from the northern region. This month’s decline is Iraq’s strongest monthly compliance

OPEC Compliance Rises

The survey also shows that the adherence level among OPEC members (regarding the agreed upon production cuts) rose to 92% over the last months, up from 86% in September. Indeed, Saudi Arabia which is the group’s largest exporter continued to stay below its target level, while Venezuelan output also fell due to the economic depression currently being suffered in the country. Algerian Oil production was also lower over the month as a result of scheduled maintenance in some oil fields according to Reuters. The survey also showed that production among the two-exiled former-OPEC exporters Nigeria and Libya was flat. Overproduction in these two countries pushed OPEC output to a record high in July of this year.

OPEC Expected To Extend Deal At November Meeting

The current OPEC agreement stipulates that output is to be reduced by 1.2 million per day until March 2018. The deal was agreed between OPEC and Russia, a non-OPEC member, and is expected to be extended at the upcoming November 20th OPEC meeting as both Saudi and Russian leaders are in favour of prolonging the production cuts.

Indeed, alongside the support from political leaders, major oil companies have also been voicing their support for extending the production cuts. Following the severe drop in prices over 2014/2015, oil companies are keen to see prices rise again with many firms planning $50 oil into their near-term budgets.

Big Oil Pushing For OPEC Extension

Speaking to CNBC recently, Patrick Pouyanne, the manager of one of Europa’s largest oil companies said that he believes OPEC should give the market more guidance and visibility to protect against the sort of “huge volatility” seen in recent years. Speaking also to CNBC, Bod Dudley of BP agreed with Pouyanne’s comments and said that he expects OPEC to “extend their agreements” though noted that he doesn’t have any “special insights”. Dudley also noted that he believes “a price of $50 a barrel looks like the right number to plan on for the rest of the decade.”

Technical Perspective

The rally in Oil has taken price up to just shy of the 2016 high around $55.44 which is the highest level Oil has risen to since 2015. Price remains within the broad bullish channel that has framed price action since last year. Traders will be paying close attention as price approaches the 2017 high which will likely be broken if OPEC do announce an extension of their supply cuts at the November meeting.  If price suffers any correction lower in the meantime, the rising bullish channel is likely to provide support while a retest of the local September high at 52.91 should also provide a floor.


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