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Crude Oil Continues to Climb, For Now

December 1, 2016 at 20:47 by Vladimir Vyun

Yesterday’s deal for oil production cuts announced by the Organization of Petroleum Exporting Countries continued to boost prices for crude today. While one might think that such an event had been priced in, considering that talks about the deal existed for a long time, widespread skepticism about OPEC’s ability to reach a consensus means that the actual accord was still somewhat surprising. What was really surprising is that the organization managed to convince Russia, the biggest non-OPEC oil producer, to join the cuts. Ahead of the meeting, Russia was staunchly refusing to reduce output, saying that it would agree only to freeze.

Yet the skepticism about the deal did not disappear completely. There are doubts that the countries that signed the deal will actually honor the agreement. And even if they will, rising prices will likely encourage other producers, especially US shale operators, to ramp up supply. If that happens, the likely result will be the same supply-demand balance that exists now, meaning that prices may retreat as fast as they have rallied.

January contract for WTI crude oil climbed 2.99% to $50.92 per barrel as of 20:22 GMT on NYMEX today. February Brent crude rallied 3.45% to $53.69 per barrel on ICE.

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