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Oil Sees Mixed Results Following Mixed Messages From OPEC

June 25, 2018 at 14:53 by Matt Jackson

OPEC and Russia agreed to increase oil output on Friday and Saturday, but by smaller levels than expected. The proposals do go some way to alleviate the pressure that has been placed on the market by sanctions against Venezuela and Iran, but the smaller-than-expected production increase was likely caused by those nations, as well as the likes of Iraq, that had previously refused to agree to such a deal. Analysts state that because most of the increase will come from Saudi Arabia and Russia, this means that it will be Brent consumers that benefit, and it is this disparity that has seen WTI prices increase and Brent crude prices decrease.

OPEC agreed to reduce output by 1.8 million barrels per day, in order to increase oil prices that they deemed to have become dangerously low in 2017. The group, led by Saudi Arabia and also including Russia, signed an extension to the agreement that meant supply cuts would continue until at least the end of 2018. However, reports from previous months had shown that Russia and Saudi Arabia, and therefore OPEC+ as a whole, had been restricting supply more than previously agreed.

The oil producing nations have agreed to increase production by meeting their previously agreed targets; a move which will ease some of the pressure, but still enough supply restriction that it will naturally push prices upwards. OPEC had come under huge pressure to increase its production, with an unofficial approach made by US President, Donald Trump, to ask for exactly this. However, the move was blocked by several OPEC members who said that they would not agree with such a move. By agreeing to meet their own supply restrictions, OPEC will manage to increase supply while preventing any kind of veto by opposing members. From that respect, it could be seen as a win from all sides, but there are still major concerns over oil supply levels.

WTI crude prices rose 0.45% to $68.89 while Brent crude prices fell 1.85% to $73.93 at 15:30 GMT.

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