Oil prices between optimism and wariness

Oil prices between optimism and wariness

Elisa Maria Giannetto
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Oil price quotations are at their highest in 18 months given the optimism on cuts in oil production, but US data and news from Iran invite caution

The list of countries that, in line with the commitments made with OPEC, are starting to reduce oil production, is growing ever longer. After Saudi Arabia and Kuwait, now Angola has decided a cut of 78,000 bpd. Iraq, that in the words of the Iraqi Oil Minister Jabar Ali al-Luaibi, "wants to respect OPEC’s decision taken at the last meeting in Vienna by going ahead with its plan to cut national oil production” is scheduled to follow. The wave of cuts has brought a breath of optimism to the markets, and going by declared intentions, in the first few months of 2017 production should decrease to 1.8 million barrels a day, totally absorbing the oversupply.

According to December data OPEC has already slightly reduced production from 34.38 to 34.18 million barrels. Hence the optimism among investors would appear to be justified. But the more cautious would like to wait until the first six months of this new year are up, in order to weigh up the real benefits of the cutback in production. Spirits are in fact being dampened by the data from the US and Iran. American companies are already taking advantage of the rise in oil prices to increase their output,  the number of active extraction sites in the United States is seen to have increased: 4 more units were counted at the end of this week, bringing the total to 529, the highest level for a year. Compared to the minimum levels reached late May last year, when the figure was down to 316, the recovery is thus seen to be 67.4%. On the Iranian side of things, Tehran is pushing its oil exports, thus weakening the efforts of other producers intent on reducing excess supply. As reported by Reuters, Iran, which has been exempted from OPEC cuts in order to regain market shares after the end of the Western embargo, has sold more than 13 million barrels of oil contained in its oil tankers.