Oil Breaks $52 a Barrel and Here’s Why

Saudi Arabia and Russia’s plan to continue oil production cuts in 2018 have excited the oil market, helping push prices past $52 a barrel. On Monday, ministers from both the countries announced that will continue to cut oil production till March 2018. Other countries are also expected to follow suite soon. This could help in raising oil prices further.

$52 a Barrel

Markets React to the News

 

Russian and Saudi energy ministers, Alexander Novak and Khalid al-Falih, met in Beijing on Monday. The two biggest oil production nations of the world announced that they will not rev up oil output and make deeper production cuts till 2018. In a joint statement issued later in the day, they confirmed that production cuts will extend beyond 2017. Starting middle of the year 2017, the oil output from OPEC and Russia will continue to slump till March next year.

Oil prices rose instantly by 1.5 percent following the statement. Both the WTI and Brent Crude futures went up by 1.6 percent. While the WTI went up to $48.61, rising by 77 cents, the Brent crude upped by 79 cents, reaching $51.63.

Despite the production cuts followed by Saudi Arabia led OPEC and other oil producing nations led by Russia, priced did not move post $50 in early 2017. The extension of the Vienna agreement that ratified this production cut shows that there could be further push to oil. Oil futures reacted aptly worldwide, expecting better prices in the next few weeks. Goldman Sachs group has suggested that other countries will do the same to pump up oil prices.

What About US Oil?

 

A Bloomberg survey report suggests that US stockpiles of oil has declined recently. In fact, the stocks have slid for a sixth consecutive week. However, the strategy adopted by the OPEC is still doubtful. There are signs of recovery in Nigerian oil production and Libya is also expected to pump more oil. US oil producers are not giving up on production yet. They continue to bring more oil to markets which could offset some of the price gains due to OPEC cuts. US oil could be the single biggest hindrance for OPEC’s goal of stabilizing oil prices.

Last week’s price rebound could result in a modest rally in oil this week. In 2016, OPEC’s revenue from net oil export hit a 12-year low. The revenue is expected to increase in 2017. However, Saudi and Russia would need support from other oil producing nations if they must bring any significant uptick in the oil prices.

 

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Anthony Young