The Organization of the Petroleum Exporting Countries (OPEC) took its first action in years to cut production on Wednesday in hopes of lifting oil prices. How big a cut did the cartel agree to? Will it really make a difference?
OPEC Members Agree To Cut Oil Production
Oil had its biggest day in more than five months as prices rose 5.3 percent. This action came after OPEC members agreed they could limit oil production – in November. While there are a lot of maybes, this is a big step forward for oil. But will it actually work?
While OPEC members agreed at a meeting Wednesday in Algeria that a production cut is needed to lift oil prices, plans for the supply cut won’t be finalized until November. Barrel output will go from 33.25 million barrels per day to 32.5-33 million barrels per day. A lot can go wrong between now and November, but for now investors love the news.
Many analysts, however, are not as optimistic.
This isn’t the first time this year OPEC has tried to cut oil supply. The committee met in April, but talks fell apart when Iran would not join the talks. In addition to that, all the OPEC countries compete against each other and the U.S. for market share. Several OPEC members, Iran, Libya, and Nigeria, all want to increase oil supply. Throw into the mix the political tensions of the group and this agreement seems very delicate.
Yet, there is a positive feeling about “this time”. Members are hoping that things are more conducive to getting a deal done. Many of the largest producers are close to maxing out capacity, so lowering output slightly wouldn’t be too much of a stretch. Additionally, Saudi Arabia and Iran are feeling pressure domestically from the drop in oil prices, and thus be willing to put aside differences to improve their finances.
Wonder why OPEC needs to cut production? Check the news here with CNNMoney!
For now, trading oil is a smart play. Exxon Mobil Corp. (XOM) rose 4.40% on the news. Chevron Corp. (CVX) rose 3.20%. Energy companies and oil shares will go up until november, and then take their cues based on that meeting.
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