Saudi Arabia’s decision to agree to an OPEC oil output freeze on Wednesday stems from its “tattered finances”, Bloomberg added.
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In this photo dated Wednesday, Sept. 28, 2016, Algerian Energy Minister Noureddine Boutarfa, center, leaves the global conference center in Algiers, Algeria, with Minister of Energy and Industry of Qatar, Bin Saleh Al. Energy prices had jumped after the nations of OPEC, which collectively produce more than third of the world’s oil, agreed to a small cut in production. In fact, the International Energy Agency expects India to remain the fastest growing importer of crude till 2040.
The price for Brent crude oil opened relatively even to start the day at $48.73 per barrel.
But over the last couple years, Saudi Arabia, the biggest producer, has tossed that to the wind – experts say it saw some advantages to pumping with abandon, and that’s contributed to these ridiculously low prices. At the most, the possible deal would shave off 700,000 barrels a day – some 2 percent of overall production.
Benchmark U.S. crude jumped $2.38, or 5.3 percent, to close at $47.05 a barrel in NY. And that risk remains – the deal, after all, is not done yet.
Against most odds and analyst expectations, OPEC members managed to reach a deal on Wednesday to curb production to a target range of between 32.5 million bpd and 33.0 million bpd, with full details to be finalized at the formal OPEC meeting in Vienna on November 30. Meanwhile, Iran’s return to oil markets and sanctions relief have improved the situation in the country, whose economy struggled under the weight of worldwide sanctions for years, Kilduff said.
We see any agreement between Iran and Saudi in the current environment, particularly with Russia’s involvement, as historic and a more positive signal for the region. In the time since, a deal between Iran and world powers over its contested nuclear program allowed it more firmly back into the global oil market.
OPEC slashed output again after the 2008 financial crisis as US oil prices plunged from a record $145 a barrel to under $35.
Saudi Arabia has always been the only producer with spare capacity, allowing it to raise or lower production to influence the market under its traditional policy. But it also took multiple cuts, every time, to persuade crude prices to rise again.
An invitation to join cuts could also be extended to non-OPEC countries such as Russian Federation.
As a result, Courvalin is looking for oil prices to fall from $47 now to $43 a barrel by the end of the year (vs. a forecast for $51 a barrel previously).
The International Energy Agency said this month that supply will outstrip demand well into next year.
OPEC’s hope now is that it will be able to get non-OPEC members, such as Russian Federation, to get aboard its strategy to trim output. USA stocks were poised for a more subdued open. This slump in prices has been impacting the fortunes of oil exporting countries including Saudi Arabia, which recently had to take drastic measures including reducing salaries of its government staff and ministers.
“OPEC’s production cut offers support for oil-related currencies”, noted Lee Hardman, analyst at Bank of Tokyo-Mitsubishi UFJ.
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Details of the deal remain to be agreed and analysts said markets will now wait to see whether non-OPEC producers such as Russian Federation, the United States and Canada will make cuts of their own.
