Oil price on the rise; it seems to be unstoppable

crude oil price EIA

Oil price surge continued today with WTI benchmark hitting above $50, as investor confidence got buoyed by a stream of good news.

The markets were a bit nervous on Monday, as the much-anticipated OPEC+ meeting ended without reaching an agreement. On Tuesday, however, they reached an agreement, with Russia and Saudi Arabia seeing eye to eye on the core of the details of it.

On Tuesday, Saudis decided to take a deeper cut in their production, some of the members like Russia and Kazakhstan, meanwhile, were allowed to increase their production by a relatively smaller amount in order to compensate for the dip in global production.

Both Russia and Kazakhstan can increase the production by a modest 75,000 barrels per day – much smaller than what they hoped for.

Apart from its determination to curb the production, the Saudis have not spelled out their own production cut that was the part of the deal; the Saudi delegation was tight-lipped about it.

The oil markets lost no time in reacting positively to the news, with the price of both WTI and Brent Crude going up; WTI surged by 5% on Tuesday evening.

oil price on tuesday

There was more good news on the demand front: the API, American Petroleum Institute, predicted yet another draw in US crude oil inventories, something, that certain investors already knew, was in the offing, although the numbers did not match.

In addition, in Asia, oil traders managed to empty their floating storage at a considerable rate to meet the growing demand for the upcoming winter months; plummeting temperatures, especially in China and Japan must have increased the demand of the commodity.

The extended OPEC+ summit ended with the determination of the members to maintain the output steady, rather than flooding the markets with excess oil – at least, for now.

The organization that planned to meet regularly may be watching the impact of their decision on the markets very closely. They exercise caution with intended cuts in production – for a reason.

The members of the OPEC+ know a steep cut in production is tantamount to opening a backdoor to American shale oil producers and those of other countries which aspire to do the same, that, along with the green movement, can dampen the relevance of the organisation in the 21st century.


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