Commodity Blog

Commodity news, technical and fundamental analysis, market data on precious metals, energies, industrial metals, and soft commodities


OPEC Output Cut Helps US Crude Spike 9%

November 30, 2016 at 18:17 by Andrew Moran

After months of speculation, reports, and rumors, it is official: the Organization of Petroleum Exporting Countries (OPEC) has agreed to cut oil output levels. This helped oil surge as much as 9% during Wednesday’s trading session as it seems Christmas has come early for oil traders.

January West Texas Intermediate (WTI) crude futures soared $3.83, or 8.47%, to $49.06 per barrel at 16:47 GMT on Wednesday on the New York Mercantile Exchange. This is the highest US crude has traded in one week and could be a sign of things to come leading up to the holiday break.

Brent is performing just as well. January Brent crude futures rose $3.63, or 7.83%, to $50.01 a barrel on London’s ICE Futures exchange. This has helped Brent recover from Tuesday’s 4% drop and is on track for its biggest one-day move since February.

Oil prices could stay atop the $50 threshold for the remainder of 2016.

This comes as OPEC agreed to its first production limiting arrangement in eight years. The oil cartel agreed on a proposal in Vienna that would see members reduce their output by 1.2 million barrels per day (bpd), or 4.5%, to 32.5 million bpd. It remains unclear as to when the output cut will go into effect, but experts allude to January 1, 2017 as the day when the production cut will be initiated.

Saudi Arabia and Iran, which were two potential holdouts on the arrangement, will each do their part. Saudi Arabia will slash 486,000 bpd to 10.6 mill bpd, while Iran will freeze output at 3.79 million bpd. These measures will help oil-dependent nations like Libya and Venezuela moving forward.

Here is a statement from Mohammed Bin Saleh Al-Sada, Qatar’s Minister of Energy and Industry and President of the OPEC Conference:

OPEC fully appreciates the importance of bringing forward the rebalancing of the fundamentals and returning sustainable stability to the market. This will be beneficial to our economies, the global oil market and the world economy as a whole.

The past month or so has shown that price volatility is still a significant concern.

[The] persistent stock overhang, as well as the recent price volatility, has sharpened our minds. All producers now understand the gravity of the situation. And I should add that all consumers should comprehend the gravity of the situation too.

We need to ask ourselves whether the situation that has evolved over the past two years or so is putting this future at risk. Global spending on exploration and production investments fell in both 2015 and 2016, and some are now even talking about this continuing. A third year of investment falls would be unprecedented for the industry.

Russian officials have said that Moscow will announce its plans regarding output after it has examined OPEC’s agreement.

The next OPEC meeting will be held on May 25, 2017 in Vienna.

Although oil prices are skyrocketing on Wednesday, it is believed that this will only be for a short period of time. With oil prices rising again, this could give US shale oil drillers an incentive to increase output. As the global oil market is flooded with supplies, prices will begin to dip.

If you have any questions and comments on the commodities today, use the form below to reply.

Leave a Reply