The price of WTI and Brent crude oils has made a moderate recovery since bottoming-out during midday trading as analysts question the bullish notion maintained since the OPEC production cut ironed out in the production deal signed last November.
Oil nosedived this morning on news Iran and Iraq may not be reducing their oil production at all, thus placing a distinct notion of pessimism in regard to the OPEC deal designed to reduce the global oil glut, in the minds of many analysts.
The price of Brent crude, the global oil benchmark, had recovered moderately to $54.74/barrel, down 0.22% on the day at 16:47 EST, whilst WTI had recovered to $51.76/barrel at the same time. Both rising form the bottoming out at under -2.60% during midday trading.
Worries had lingered that the strength of the OPEC deal may begin to unravel once prices ascend above $50/barrel and constituent nations of the cartel began to consider the prospect of cashing in on the higher prices, despite the signing of a deal to be implemented this month to reduce global oil production.
The deal was designed to reduce global oil supply by 2%, with the primary desired implication amongst constituent nations of returning the prices of crude within the region of those seen in July 2015, prior to the commodity’s nosedive to an eventual floor of beneath $30/barrel at the beginning of 2016. With occasional rises and plateaus to blunt it’s fall.
Incorporation of non-OPEC members, primarily Russia, and promises by the cartel’s de facto leader Saudi Arabia to maintain the most significant production cuts, had instilled a notion of distinct optimism amongst traders during late November and December 2016 as the price rose over $50/barrel and then $55/barrel, with occasional spikes reaching close to the $60/barrel many analysts had predicted.
However, despite the optimism, worries lingered concerning the capacity of U.S. shale producers to begin pumping greater volumes, thus cashing in on the inflated prices. Such a concern had prevented the commodity from gaining any significant or sustained upward traction beyond $56/barrel.
The revelation of Iran and Iraq not maintaining their promised production cuts, as it was revealed Iranian floating storage experienced a 48% reduction from 32.5 million barrels in September, to 17 million, as referenced from ClipperData, simultaneous to concerns regarding Iran, who do not appear to be reducing their oil production, has enhanced concerns about a return to the state of significant market saturation.
Market reaction to the production volumes soon to be posted by other constituent nations remains to be seem, but concern over the capacity of U.S. shale producers to increase production, as well as the increasing pessimism surrounding the OPEC deal is manifesting into various notions of bearishness for the foreseeable future, although the general opinion remains relatively bullish.
Chart from: https://www.dailyfx.com/crude-oil
Showing daily fluctuations in the price of Brent crude oil, the global price benchmark. The significant rise apparent towards the most recent side of the chart represents the enhanced optimism in the wake of the signing of the OPEC production cuts in November 2016.