2.4 C
New York
Wednesday, December 2, 2020

Oil prices have doubled in a year. Here’s why

It’s a good day for OPEC.

Data published Monday by the oil cartel show its members have largely complied with an agreement to slash production.

The confirmation caps a remarkable year for OPEC, which was forced to devise a plan to boost prices after they fell to $26 per barrel in February 2016.

The price collapse — to levels not seen since 2003 — was caused by months of growing oversupply, slowing demand from China and a decision by Western powers to lift Iran’s nuclear sanctions.

Since then, the market has mounted a stunning turnaround, with crude prices doubling to trade at $53.50 per barrel.

Here’s how major oil producers worked together to push prices higher:

OPEC deal

OPEC agreed major production cuts in November, hoping to tame the global oil oversupply and support prices.

The news of the deal immediately boosted prices by 9%.

Investors cheered even more after several non-OPEC producers, including Russia, Mexico and Kazakhstan, joined the effort to restrain supply.

Crucially, the deal has stuck. The OPEC report published Monday showed that its members have — for the most part — fulfilled their pledges to slash production. The International Energy Agency agrees: It estimated OPEC compliance for January at 90%.

UAE energy minister Suhail Al Mazrouei told CNNMoney on Monday that the results were even better than he had expected.

The production cuts total 1.8 million barrels per day and are scheduled to run for six months.

Related: OPEC has pulled off one of its ‘deepest’ production cuts

election2016 markets oil up

Investors upbeat

The OPEC deal took months to negotiate, and investors really, really like it. The number of hedge funds and other institutional investors that are betting on higher prices hit a record in January, according to OPEC.

The widespread optimism is helping to fuel price increases.

Higher demand

The latest data from OPEC and the IEA show that global demand for oil was higher than expected in 2016, thanks to stronger economic growth, higher vehicle sales and colder than expected weather in the final quarter of the year.

Demand is set to grow further in 2017 to an average of 95.8 million barrels a day, compared 94.6 million barrels per day in 2016.

The IEA said that if OPEC sticks to its agreement, the global oil glut that has plagued markets for three years will finally disappear in 2017.

Saudi oil minister: I don’t lose sleep over shale

What’s next?

Despite the stunning growth, analysts caution that prices may not go much higher.

That’s because higher oil prices are likely to lure American shale producers back into the market. The total number of active oil rigs in the U.S. stood at 591 last week, according to data from Baker Hughes. That’s 152 more than a year ago.

U.S. crude stockpiles swelled in January to nearly 200 million barrels above their five-year average, according to the OPEC report.

“This vast increase in inventories is a result of a strong supply response from the U.S. shale producers, who were not involved in the OPEC agreement and who have instead been using the resultant price rally to increase output,” said Fiona Cincotta, an analyst at City Index.

More supply could once again put OPEC under pressure.

CNNMoney (London) First published February 13, 2017: 9:13 AM ET




Source link

Related Articles

Matt Hancock ‘thrilled’ with Covid vaccine approval news

Hancock 'thrilled' with Covid vaccine approval. Video, 00:01:18Hancock 'thrilled' with Covid vaccine approval Source link

Tesco to repay £585m in business rates relief

"Ten months into the pandemic, our business has proven resilient in the most challenging of circumstances. While all businesses have been impacted -...

Hong Kong: Joshua Wong sentenced to 13 months in prison over 2019 protest

Two other activists, Agnes Chow and Ivan Lam, were sentenced to 10 months and seven months in prison respectively over the protest on...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

2,730FansLike
263FollowersFollow

Latest Articles

Matt Hancock ‘thrilled’ with Covid vaccine approval news

Hancock 'thrilled' with Covid vaccine approval. Video, 00:01:18Hancock 'thrilled' with Covid vaccine approval Source link

Tesco to repay £585m in business rates relief

"Ten months into the pandemic, our business has proven resilient in the most challenging of circumstances. While all businesses have been impacted -...

Hong Kong: Joshua Wong sentenced to 13 months in prison over 2019 protest

Two other activists, Agnes Chow and Ivan Lam, were sentenced to 10 months and seven months in prison respectively over the protest on...

Mick Schumacher to join Haas for 2021 season

Mick Schumacher, the son of seven-time Formula 1 world champion Michael, has signed to race for Haas next season.The US-based team said the...

UK approves Pfizer coronavirus vaccine for use ‘from next week’

This marks the first time that citizens outside of the worldwide clinical trials will have the opportunity to be immunized against Covid-19, according...
%d bloggers like this: