Oil prices hit 18-month highs on the first full trading day of the new year as reports suggested Opec member states have begun to reduce production. The group said November 30 it would curb nearly 1.2 million barrels a day but that several nations - Libya among them - didn't have to commit due to exceptional circumstances.
The deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members to curtail output by nearly 1.8 million barrels per day (bpd), the first in 15 years, is due to go into force on January 1.
Venezuela's state-held company PDVSA, which made the announcement of the cuts by instruction from the oil ministry, said that it and its subsidiaries would begin to "implement a reduction of the volumes of the main crude oil sales contracts without prejudice to PDVSA's global contractual commitments and in accordance with the terms and conditions of current contracts". The black gold remained highly volatile in 2016 as Brent prices fell to a multiyear low of under $28 a barrel last January and struggled to breach the $50 level until the Organisation of Petroleum Exporting Countries (Opec) deal pushed prices higher.
Every one dollar increase in global crude oil prices, the exchequer will have to shell out an additional Rs 9,126 crore every year.
"Today's Department of Energy report was positive for light products due to draws in gasoline and distillate inventories compared to consensus' build expectations", British bank Barclays said in a note.
We expect prices to be underpinned throughout the month because of optimism over the production cuts, but I'd be surprised by a huge breakout to the upside until we can see if the program is gaining traction.
News from Libya has hit the wires in late December that the country's major oil field could come back online after staying off for past two years. Their investment in assets also depends on oil prices as the revenue stream is highly relied on oil. Shell's A shares rose 0.5 per cent to 2,252.75p.
Elsewhere, PVM said that, apart from countries exempt from the agreement, the OPEC-fueled rally in crude oil prices could bring producers in expensive US shale basins back to work. The UAE has committed to cut 139,000 bpd even as it continues to move ahead with plans to raise production capacity from 3.1 million bpd to 3.5 million bpd by next year.
Distillate prices opened Tuesday at $1.6727/gallon.