It appears that the oil’s shaky journey up and down on the market continues. After the crisis of 2015 and early 2016, the oil began stabilizing when OPEC agreed to cut back production, thereby alleviating oversupply. Still, results have been less successful than originally planned, mostly because non-OPEC states such as the US continue increasing their own production of oil.
Over the past few weeks oil kept at lower levels, but today it managed to bounce back up and grab investors’ attention again. OPEC is scheduled to meet this May to discuss the possibility of furthering their agreement and continuing their efforts to increase oil prices. If that happens, it will be wiser to buy now before new highs are reached.
Other than the agreement itself, a factor that caused the oil to strengthen again is the fact that Russia, who is not in OPEC, seems to be following the model set by OPEC countries and abide their agreement, even though it’s legally not obligated to do so. Furthermore, we’ve seen a slightly weaker dollar these days, which also bodes well for the oil. Today we’re expecting the first GDP report from the US since Trump came in office – if the results are disappointing, this has the potential to drive oil prices further up.
As of the writing of this article, Brent crude is at $51.77, while light sweet is trading at $49.41, both flirting with the psychological level of $50.
Currently OPEC members have been about 85% compliant with the original agreement to reduce oil production. Russia’s voluntary adherence is helping too. If the member states agree in May to continue with this policy, we may see the oil recover some of its former glory.
The potential threats for the oil are, as mentioned above, the United States (who have developed methods for low-cost oil extraction and were able to endure the low prices of oil) and to a certain extent Libya which is set to start pumping more. It is also possible that OPEC might not reach a secondary agreement or might fail to comply with the present one.
Overall, oil is still volatile and we need to be on the lookout for any relevant news that may pull it one way or the other.