Friday, December 16, 2016

Oil Prices Rise As Planned Production Cuts Start to Materialize
By Henning Gloystein

Oil prices rose on Friday after Kuwait appeared to be lining up bigger supply cuts than had been initially expected from January as part of a coordinated effort by oil producers to drain a global glut.

International Brent crude oil futures were trading at $54.29 per barrel at 0538 GMT, up 75 cents, or 0.5 percent from their last settlement.

U.S. West Texas Intermediate (WTI) crude futures were up 31 cents, or 0.61 percent, at $51.21 per barrel.

The higher prices came after Kuwait, a member of the Organization of the Petroleum Exporting Countries (OPEC), notified customers that it would cut supplies from January as part of an effort by OPEC and other producers led by Russia.

Under the deal, production will fall by almost 1.8 million barrels per day (bpd) in a bit to reduce a fuel supply overhang that has dogged markets for over two years.

Kuwait Petroleum Corporation (KPC) had already said on Tuesday it had officially notified its customers of a cut in their contractual crude oil supplies for January.

But traders said on Friday that market prices rose as KPC appeared to be cutting supplies more than initially expected, although exact figures were not available.

"Prices recovered as news emerged that Kuwait was said to be making bigger production cuts to U.S. and European customers," ANZ bank said on Friday.

Most exporters have a so-called 'operational tolerance' clause in supply deals under which they can reduce or increase their contracted exports to clients with little notice. Market sources said that KPC had informed clients that it was cutting supplies beyond the operational tolerance.

Beyond the impact of cuts from OPEC, analysts emphasized that the willingness of non-OPEC producers to join the cutbacks was significant.

"The decision by a group of 11 non-OPEC producers to join OPEC in production cuts has likely put a floor on Brent oil prices in the low $50s until such time as adherence to the cuts can be assessed," U.S. investment banking firm Jefferies said in a note to clients.

(Reporting by Henning Gloystein; Editing by Simon Cameron-Moore and Kenneth Maxwell)

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