Oil bulls are back – Oil hits 17 months high amid upcoming cuts
January 03, 2017 – The New Year started well for OIL as price of Crude Oil jumped above $55 per barrel for the first time in the last 17 months. As I am writing this article, Oil price is hovering around $54.85 a barrel. On Sunday, the first day of 2017, major OIL suppliers started cutting their supply [at least that is what they promised to do.] In total, the daily OIL supply is expected to drop by more than 1.5 Million barrel! This is a long shot, but if the OPEC manages to make this deal work, OIL will then easily trade between $50 and $60 per barrel. A lot depends on the countries who have made promises of cutting their production/supply levels.
Some critics believe that sooner or later, some or all countries will start to increase their production levels in order to cash-in on increased oil prices. This has happened before and can certainly happen again. When the news about crude oil overflow, or oversupply hits the media, traders will respond by going Short on Crude Oil Futures.
OPEC is trying to stabilize oil prices by implementing the November’s agreement that all OPEC members have agreed to. According to this deal, all member countries have agreed to drop oil production from the start of the year 2017. Two countries are exempt from the production cut; they will produce crude oil at current levels.
The OPEC deal is the reason for the current boom in oil prices. Non-OPEC countries, like Russia, are also making their contribution by offering production cuts. It took OIL producing countries a while to realize that they cannot prosper by flooding the market with more and more crude oil. The competition to produce the most oil has caused these countries great harm in terms of weakening economies. Price of crude oil went below $30 all because of this oversupply problem. Every oil producing country was pumping oil into the market like there was no tomorrow; as a result, their economy went down the hill. $30 a barrel is not a sufficient price to cover even the cost of producing crude oil.
“Traders and Investors are going to keep a close eye on Crude Oil production levels. No one knows if all OPEC and non-OPEC oil-producing countries are going to keep their promises. If oil supply starts to rise, it won’t take long for the price of crude oil to again fall back below $45,” said Oleem Dar, who is a freelance writer and an analyst.