Optimism on OPEC Deal Remains High

Optimism on OPEC Deal Remains High

Despite a chopping trading session Friday, oil closed its the first trading  week of 2017 at an increase as traders and analysts remain confident in the capacity of OPEC to keep their word regarding the promised supply cuts ironed out in November 2016.

Many analysts had been sceptical the oil cartel would keep to the promised production cuts allocated in the November oil deal, citing previous attempts by constituent member states to ‘adjust’ their production levels to artificially create the image of lower production.

Such scepticism combined with fears U.S. shale producers would begin pumping more, thus cashing in on the increased prices had not prevented oil enjoying another weekly gain at market close.

The deal, in which Saudi Arabia, the de facto leader of the cartel, would take the largest production cut, and which, when incorporating non-OPEC members, particularly Russia, promised to shave 2% from global supply, thus returning the market to a more balanced state, had raised prices considerably in the final trading weeks of 2016.

However, fluctuations had been apparent in the commodities rise with WTI experiencing a volatile final trading week of 2016 – a trend shared by Brent crude, the global oil benchmark. Prices had bounced considerably, with WTI ultimately ending the week down, whilst Brent experienced a moderate gain.

Although occasional losses have been incurred over trading sessions since the signing of the November OPEC report, both crude oils still remain comfortably within the $50 dollar territory – with WTI closing the week at $53.67/barrel and Brent at $56.80/barrel. With the signing of the deal having propelled both from the $45 dollar range to over $51/barrel and beyond.

Analysts are even predicting the continuation of prices potentially reaching as high as  $60/barrel and higher by the third quarter of 2017, however such bullish speculation may be tested with the continuation and even increase of production by U.S. shale producers and the maintaining of the true production cuts of the OPEC production cut.

 

Graph from: https://www.dailyfx.com/crude-oil

Showing weekly fluctuations in the price of global oil benchmark, Brent crude.

 

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