The firm revised its short-term oil price assumptions after OPEC and several non-OPEC oil producers agreed to cut output by a combined 1.76 million barrels per day next year.

 

Oil has traded above $US50/bbl since OPEC's November 30 agreement to cut output for the first time in eight years, and was buoyed further last weekend when 11 non-OPEC producers, including Russia, reached a broader deal encompassing countries that produce about 60% of the world's crude.

 

While OPEC views this as necessary to rebalance the market, particularly as cartel leader Saudi Arabia is suffering due to low oil prices, implied volatility is still high due to the exact timing and magnitude of the cuts, the elasticity of US shale to higher prices and emerging market demand growth.

 

West Texas Intermediate was heading for a weekly loss yesterday as Libya prepared to lift supply as the US dollar gained, countering OPEC's efforts and its collaborators in the oil cuts.

 

Still, for now sentiment is riding high, in Edison's world at least.

 

"Assuming OPEC's 14 members and Russia comply with more than 70% of the pledged output reductions in early 2017, we expect global inventories to fall in Q2 2017, reaching the top of their five-year range by the end of 2017," Edison said in its Macro Outlook yesterday.

 

"We estimate that OPEC compliance will accelerate crude oil inventory draws by around six months from earlier IEA forecasts [from the November 2016 oil market report].

 

"We maintain our price assumptions in line with the US Energy Information Administration at $US51.70/bbl in 2017, rising to $70/bbl (real) long term - minor adjustments from our forecasts in June 2016."

 

OPEC production cuts were first tabled in Algiers in September with suggestions that Saudi Arabia was shifting from a policy of defending market share to protecting price, at least in the short term.

 

The Algiers accord was formalised at the end of November, and supplemented with the addition of an agreement with several non-OPEC oil exporters to deliver a combined reduction in crude output of 1.76MMbpd: a combined reduction equivalent to 1.8% of projected 2017 global demand.

 

In addition to the production adjustments in the table below, non-OPEC producers Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan. 

 

Malaysia, Mexico, Oman, Sudan and South Sudan have committed to reduce output by a combined 258,00bopd in addition to Russia's 300,000bopd commitment.