Connect with us

Business

OPEC’s Deal Sends Oil Up – For Now

Published

on

OPEC members met at a meeting last November in Algeria to discuss a needed production cut to lift oil prices as the U.S. continues to produce oil at a more efficient rate. Plans from that meeting were finalized Wednesday, and OPEC is cutting oil production by 1.2 million barrels per day. Oil prices surged as a result,  but can they get back to where they were just two years ago? What can investors expect from oil stocks in the near future?

OPEC Cuts Oil Production, But Oil Prices Surged. What Gives?

The markets responded as the Organization of Petroleum Exporting Countries (OPEC) finalized an agreement to cut oil production from 33.5 to 32.3 million barrels of oil per day. This is the first cut in oil production since 2008. As such, the deal sent London’s Brent benchmark for crude up 8 percent to more than $50 per barrel. The U.S. benchmark also rose 9 percent to $49.22 per barrel. How high can the oil gains continue?

Investors should be cautious.

The OPEC agreement is a loose one. And while Kuwait, Venezuela and Algeria all agreed to monitor compliance of the OPEC agreement, the deal is only set to last six months starting in January 2017. It’s also contingent upon non-OPEC countries’ cooperation. Russia, for example, agreed to participate by reducing its production by 600,000 barrels per day. And since the cuts don’t begin for another month, the biggest oil producing members of OPEC, rivals Saudi Arabia and Iran, are stocking up on oil til then to ship to Asia. The rest of the OPEC countries are following suit as everyone takes advantage of the delay in beginning cuts.

Any gains in oil price help U.S. fracking companies, which can drill and pump new wells almost as efficiently as Saudi Arabia. Shale oil would see an immediate increase to offset the loss of oil production by OPEC. With oil prices currently at just around $50 per barrel, no one should expect the $100 a barrel level oil was trading at just two years ago. Analysts are predicting oil prices may rise as high as $55-60 per barrel and even that price increase would be only temporary.If OPEC fails to hit those levels in the six month plan, more production cuts could be in the works.

The reality is that a 1 million barrel per day cut won’t be felt in the middle of an oil glut. Non-OPEC countries will increase production, and OPEC countries, while not producing more than the allotted amount, will still sell off oil stores, which are currently being filled as quickly as possible.

For now, trading oil is a smart play. Exxon Mobil Corp. (XOM) rose 1.63% on the news. Chevron Corp. (CVX) rose 2.03%. Energy companies and oil shares will continue to rise through June of 2017, albeit not as high as many investors would like. Once OPEC’s six month agreement ends, oil prices will drop right back down.

 

Watch this video – Game of oil: Behind the OPEC deal – Counting the Cost

Trump’s Nomination Means Trouble For ObamaCare… What is the Future of Healthcare? Read the news here!

Follow us on Facebook and Twitter for more news updates!


The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Continue Reading

Copyright © 2023 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.

Is THE newsletter for…

INVESTORS TRADERS OWNERS

Stay up-to-date with the latest kick-ass interviews, podcasts, and more as we cover a wide range of topics, in the world of finance and technology. Don't miss out on our exclusive content featuring expert opinions and market insights delivered to your inbox 100% FREE!