Over the last few months, talk of the first global oil pact in 15 years has been making headlines. Now, following its realisation, crude oil prices have soared, with the value of the black stuff reaching a welcome 18-month high.
Spike Driven by Non-OPEC deal
The announcement by OPEC of their decision to cut fuel production had already led to an increase in recent weeks, and after a joint announcement by 11 oil producing non-member countries, it seems that a solution to the problem of oversupply may finally have been reached.
The agreement means that non-OPEC crude producers, including Russia, will begin producing 558,000 fewer barrels of oil per day, representing a 0.6% reduction in global supply by next year.
Oil Price Recovery
This move comes on the back of a long-term decline in crude oil prices, largely due to a surplus of goods, and most commentators have an optimistic outlook for the future of the commodity on the back of it.
Although this commitment is lower than the 600,000 barrels per day originally outlined in OPEC’s 30th November deal, it will still represent a significant reduction when combined with the 1.2 million barrels announced by OPEC earlier in the year.
As one market analyst explained: “This historic agreement is a game changer. Although the crude oil rally started at the end of last month, when OPEC first announced the deal, I think there is plenty of fuel left in this rally.”
Further impetus has been provided by Saudi Arabia, which has announced the potential for further cuts on top of those it has already committed to.
According to Vivek Dhar, the Commonwealth Bank’s mining and energy commodities analyst: ‘[This move by Saudi Arabia] shows that the historic deal has credibility.”
Oil Price Daily Chart for 2016:
Boost For Equities
The deal has caused prices of the commodity to increase by as much as 4.5%, with oil giants numbering among the highest risers. The FTSE 100 saw BHP gain an impressive 3.3%, whilst Royal Dutch Shell and BP grew 1.6% and 1.5% respectively.
Among smaller players, Petrofac rose by 5.2% and Tullow Oil by 4.4%. Premier Oil and Enquest were more fortunate still, rocketing by 10.3% and 10%.
In the opinion of Mr. Dhar, this is only the beginning: “With around 1.8% of global supply set to be removed from oil markets early next year, markets may now come into balance by early as 2Q17 and keep prices sustainably above $US50/bbl in 2017.”
For commodities traders, the future could be full of promise.
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