Oil starts New Year higher

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Published Jan 3, 2017

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Hong Kong - Oil advanced after the biggest annual gain

since 2009 as output cuts by Kuwait signalled OPEC's position and other producing nations

started trimming production to stabilise the market.

Futures rose as much as 0.9 percent in New York after

increasing 45 percent last year. OPEC member Kuwait has cut output by 130 000

barrels a day to about 2.75 million a day, Al-Anba newspaper reported, citing

Kuwait Oil Company CEO Jamal Jaafer. Drillers targeting crude in the US added

active rigs for a ninth week, boosting the number to the highest in about a

year, according to data from Baker Hughes on Friday.

Oil climbed for the first time in three years in 2016 as

the Organisation of Petroleum Exporting Countries and 11 nations from outside

the group agreed on an output cut plan, effective January 1, to reduce bloated

global inventories. In the US, the world’s biggest consumer, crude stockpiles

remain at the highest seasonal level in more than three decades.

“It’s understood that countries like Kuwait, who are

close to Saudi Arabia, are expected to diligently implement the output cuts,

but it’s those nations such as Iraq and Russia that are the ones the market is

mostly concerned about,” said Hong Sung Ki, a Seoul-based commodities analyst

at Samsung Futures Inc. “Once oil reaches $60 a barrel, increasing rigs in the

US will be the biggest factor that will limit oil from rising further.”

West Texas Intermediate for February delivery gained as

much as 48 cents to $54.20 a barrel on the New York Mercantile Exchange and was

at $54.03 at 2:40 p.m. in Singapore. There was no trading Monday because of the

New Year holiday. Total volume traded was about 42 percent below the 100-day

average.

Output cuts

Brent for March settlement was 32 cents higher at $57.14

on the London-based ICE Futures Europe exchange. Prices climbed 52 percent last

year, the most since 2009. The global benchmark traded at a premium of $2.18 to

March WTI.

OPEC nations and non-members including Russia and Mexico

have agreed to trim output by about 1.8 million barrels a day. Iraq will start

implementing cuts by reducing heavy and medium grades, the nation’s oil

minister Jabbar al-Luaibi told Kuwaiti daily al-Jarida.

“If we see ongoing evidence of the production cuts, it

will have a positive impact on the market,” said Ric Spooner, a chief market

analyst at CMC Markets in Sydney. “A big factor to watch over the coming months

will be the response of shale oil to the supply cuts.”

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