Oil price on the rise; it seems to be unstoppable
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.
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.