Kuwait has confirmed it would cut crude oil output starting January as part of the deal agreed by OPEC and non-OPEC producers earlier this month. The news sent Brent and WTI higher, with the former reaching US$54.26 at 1:30 AM EST, and the latter changing hands at US$51.16, both up by about half a percentage point.
The Kuwait Petroleum Corporation said it had notified its clients that January deliveries will be lower, with reports suggesting that the company would cut a larger portion of its output than initially expected.
According to sources from the client side who spoke to Reuters, Kuwait was cutting supplies above the so-called operational tolerance. The operational tolerance is a stipulation in most oil export contracts that allows the seller to increase or cut the size of a delivery with no advance notice, but within certain limits.
The OPEC deal initially aimed for cuts of 1.2 million bpd, targeting overall output of 32.5 million bpd. However, in the last months, all OPEC members have been expanding their production. Now the amount to be cut to stay under that cap has swelled to 1.7 million bpd.
The Kuwait news is quite timely, coming soon after doubts emerged that Iraq may already be going back on its commitment to partake in the cut. According to oil-loading data seen by the Wall Street Journal earlier this week, OPEC’s second-largest producer was planning to increase shipments of its Basra grade crude in January. This grade accounts for 85 percent of Iraq’s oil exports.
Related: The Oil Mystery Behind Saudi Arabia’s Production Cut
Iraq had pledged to cut production by 210,000 bpd starting in January, from an estimated 4.56 million bpd on average for October. Kuwait’s share was to be 130,000 bpd less than its 3-million-bpd production level.
So far, the OPEC deal and the one with 11 non-OPEC producers that followed it have failed to push crude up to US$60 as some analysts expected. Rather, doubts about compliance among the group’s members and that of non-OPEC producers have limited the upward potential of prices, restraining them comfortably below the US$55 mark.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.