Oil Rebounds on Hope for OPEC Production Cut

Prices were higher Thursday

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Oct 28, 2016
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Oil prices were higher Thursday amid renewed hope that OPEC will implement a plan to cut production.

Saudi Arabia and its OPEC allies in the Gulf agreed to cut peak oil output by 4%, sources say. Gulf energy ministers reportedly relayed the information to Russia’s oil minister, Alexander Novak, earlier in the week.

Novak said Moscow would not be cutting its output but will be freezing it at its current levels.

Brent oil for December added 35 cents to trade at $50.33 a barrel. Prices fell to $49.65 on Wednesday, as investors grew doubtful the world’s top oil producers would come to an agreement on cutting output.

U.S. crude oil for December was up 22 cents to $49.41 a barrel. Prices were down 78 cents on Wednesday, trading at $49.18 after falling to a low of $48.87.

OPEC members agreed in September to cut output to 32.5 million to 33 million barrels per day. At an average rate of 33.39 million barrels per day, the group would need to reduce output by 400,000 to 900,000 barrels per day to reach the target.

The group said no details would be finalized on individualized quotas until its next official meeting on Nov. 30 in Vienna.

There is no guarantee the group will come to an agreement at its official meeting. Iran, Iraq, Libya and Nigeria have all indicated that they may not take part in the production cut.

“OPEC’s meeting will be a tough one,” said a spokesman from Opteck, a forex and CFDs (Contracts for Difference) trading platform. “Uncertainty from Libya, Iran and Nigeria will only complicate matters further.”

But sources close to the matter say it is generally understood that Nigeria, Libya and Iran should be exempt from the agreement, as output from these countries has been dented by wars and sanctions.

Sentiment on oil was boosted by news that U.S. inventories had declined by 553,000 barrels last week to 468.2 million barrels. The decline was centered on the West Coast, which is not connected to the rest of the network.

In other oil-related news, ExxonMobil Corp. (XOM, Financial) is floating the idea of constructing a trading division. After a two-year slump in oil prices, the largest publicly traded oil producer is looking to offset losses. Exxon executives are considering setting up a trading division that would allow the company to buy and sell crude and refined products from other producers, according to FT.

Disclosure: Author has no interests in any of the securities mentioned.

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