Iran welcomes OPEC production-cut decision

  • Iran welcomes OPEC production-cut decision

Iran welcomes OPEC production-cut decision

OPEC's output cut is also seen as a boon for US shale producers, rivals to the oil cartel.

Rystad Energy's analysis shows that shale production is expected to grow significantly from 2018, with a yearly addition of 1 million bbl/d, whilst offshore will see a production decline from 2018.

The cartel will cut 1.2 million barrels a day from its present output after its 14 members put aside differences at a meeting Wednesday to agree on individual production levels.

Both shale and OPEC production will play an important role in making sure that enough oil will flow to the market over the next year. It was also broader than many had expected, extending beyond OPEC.

Tehran agreed to limit its production to just under 3.8 million barrels per day, nearly the same amount of 2005 before beginning of the sanctions.

Prices had fallen to near 13-year lows of below $30 a barrel in February from peaks of more than $100 in June 2014 largely due to an oversupplied market outpacing demand.

The jump in oil prices added to inflation expectations in the United States, which were already high on prospects that president-elect Donald Trump would enact reflationary policies funded by large fiscal stimulus.

"OPEC has agreed to an historic production cut", analysts atAB Bernstein said.

Also, because any cut will only take effect from next year, supplies for the rest of 2016 remain ample.

For the USA economy, that's "a sweet spot. a high-enough price to spur investment in the energy industry but not enough to seriously drain purchasing power" of consumers, he said.

Oil prices, and energy shares swept higher on Thursday after OPEC agreed to cut crude output to clear a glut, while the dollar and bond yields rose sharply on prospects that resulting inflationary pressures will lead to higher interest rates.

The combined cut will result, at least in the short term, in somewhat more pricey oil - and, by extension, vehicle fuel, heating and electricity.

And its tentative alliance with Russian Federation and other non-OPEC nations may give it - and them - additional clout in future competition for market share with USA producers, which are sure to return in increasing numbers if crude prices move upward. It argues it has yet to recover its output levels hit by years of sanctions.

USA crude production has already risen by more than 3 per cent this year to 8.7 million bpd, as its drillers have slashed costs in an effort to compete in a lower price environment.

U.S. West Texas Intermediate (WTI) crude was up 23 cents, or 0.51 percent, at $45.46 a barrel.

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