Oil prices are up on Today, rising on gains made after OPEC finally made an agreement to reduce production by 1.2 million barrels a day.
Both U.S. and international crude futures are trading above $50 a barrel. West Texas Intermediate, the U.S. benchmark, is up $1.27, or 2.57%, at $50.71. Brent crude, the global benchmark, is up $1.41, or 2.72%, at $53.79 a barrel. Now at 11:00am Central above $54 a barrel.
The agreement was signed by representatives of the Organization of the Petroleum Exporting Countries marked the group’s first concerted effort to slash output since 2008 and sent U.S. crude prices up more than 9% Wednesday.
The cut, representing around 1% of global production, it will help to reduce a supply glut that has depressed prices for more than two years. It involves significant reductions by large countries including Saudi Arabia, the group’s most powerful member and “leader” of the cartel.
“Market forces have brought supply and demand back close to balance already. The cuts are more intended to accelerate the rebalancing process and in particular the drawdown of the large inventory overhang,” said Gordon Gray, global head of oil and gas equity research at HSBC.
If OPEC members follow through, the cut will bring OPEC’s production back to where it was last spring.
“Although this may seem like a drop in the bucket of rebalancing the global supply/demand equation, the coordination seems to be enough for the markets to hang their hat on for now,” analysts at TAC Energy wrote in a research note Thursday.
Analysts say the biggest question remains enforcement, as OPEC has no authority to make its members comply. OPEC members have a history of producing beyond their allotted quotas.
Adam Longson, commodities analyst at Morgan Stanley, said that OPEC exceeded its quota by an average of 883,000 barrels a day from 2000-2008.
“Reported OPEC production will likely be higher than suggested based on recent trends and history,” he said.
“While we acknowledge that OPEC’s record of delivering on production cuts has historically been poor, on a net basis we expect this to tighten crude markets,” said Scott Darling, the head of Asia-Pacific oil and gas research at J.P. Morgan.
The deal is expected to accelerate the rebalance of supply and demand in the market, which will likely shift to a 500,000-barrel deficit in the first half of next year, Bernstein Research said. It added that the deficit could rise to more than 1 million barrels a day by the second half of next year.
Higher prices will likely cause more U.S. shale producers to increase their production.
The latest production data from the U.S. Energy Information Administration showed U.S. production increased by 9,000 barrels a day to 8.7 million barrels for the week ended Nov. 25.
“There is a real risk that higher prices could reactivate more dormant shale oil,” said ANZ Research, which expects international oil prices to hit strong resistance at around $60 a barrel in early 2017.
Another wild card is the cooperation of non-OPEC producers, which are expected to decrease production by 600,000 barrels a day. Russia said it would cut production by 300,000 barrels a day, though it isn’t clear how much of that will come from already-expected declines.
“In fact, we’re not even fully confident that Russia will freeze production, particularly if the market tempts them with higher prices,” said Tim Evans, a Citi Futures analyst.
Gasoline futures are up 4.87 cents, or 3.28%, at $1.5312 a gallon. Diesel futures are up 4.68 cents, or 2.97%, at $1.6231 a gallon.
How Will the ‘Brexit’ Influence Oil Prices?
Oil prices rose in volatile trade today, with investors less worried about prospects for the global economy after the last pre-vote opinion polls showed Britain was likely to remain in the European Union.
Oil prices were also supported by market intelligence firm Genscape’s report of a drawdown of nearly one million barrels at the Cushing, Oklahoma storage base for US crude futures during the week to 21 June, traders who saw the data said.
US crude was at $49.46 a barrel, up 33 cents. It traded between $50 and a session low of $49.08.
Commodities and other financial markets have been on tenterhooks ahead of Britain’s referendum on EU membership.
The dollar index was down 0.3%. While the sterling’s rally to 2016 highs weighed on the dollar, lower US jobless claims limited the greenback’s drop as the data bolstered the outlook for the American economy and chances for a rate hike.
A weaker dollar makes greenback-denominated oil more attractive to users of other currencies.
While oil trended higher, intraday moves were choppy over speculation on how the British vote would go.
“If the outcome turns out to be ‘Remain’, the global market reactions are likely to be muted,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
“A ‘Leave’ outcome would present the largest risk to global risk asset market values as this is not the outcome the market is currently expecting.”
In oil market news, the Canadian Association of Petroleum Producers cut its 2030 Canadian oil output forecast by 400,000 barrels per day (bpd) to 4.9 million bpd.
Nordic bank SEB lifted its 2016 Brent crude oil estimate to $48 a barrel, up from $44 previously, and raised its 2017 price forecast to $55 a barrel from $50.
Saudi Arabia’s energy minister said in a Saudi television interview that oil prices were improving and supply and demand had almost balanced.
Dollar Rises, Oil Takes a Dip
U.S. crude oil prices fell to a three-week low Tuesday as the dollar strengthened and concerns about ample global supplies persisted.
U.S. crude for July delivery settled down 39 cents, or 0.8%, to $48.49 a barrel on the New York Mercantile Exchange, the lowest settlement since May 23. Brent, the global benchmark, fell 52 cents, or 1%, to $49.83 a barrel on ICE Futures Europe, the lowest level since June 3.
Prices have rallied sharply in recent weeks as natural disasters and violence cut production in some regions and U.S. output declined.
The growing possibility that the U.K. might leave the European Union has rattled global markets this week, weighing on riskier assets such as commodities, and boosting safe-haven investments like the dollar. The WSJ Dollar Index recently traded up 0.5%. A stronger dollar can make oil, which is priced in dollars, more expensive for foreign buyers. Continue reading »
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The Texas Oil and Gas Industry is gearing up for a huge oilfield job hiring increase. Oil has finally breached $50!!
The price of crude oil is steadily rising each day. We’ve passed the bottom and are now on the way up, and there’s no stopping it, not even Saudi Arabia this time. The Texas Oil and Gas Industry is about to go into an all out oil boom. What’s this mean? This means those of you that want to work will have a job wherever you want. The state of Texas is already preparing for a massive oil boom. It could very well make the previous one look like it was just a practice run for what’s about to happen.
A huge wildfire raged near Fort McMurray, Alberta and threatened major oil sands production facilities, forcing the evacuation of thousands of workers and prolonging a shutdown that cut Canadian oil output.
Where plants and trees was removed to stop its spread, moving north of Fort McMurray into oil sand camp areas a critical firebreak jumped late Monday. Some 8,000 workers were evacuated in the heavily forested northern area of the province. Continue reading »
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