A Coordinated Deal Likely to Extend Crude Oil Prices Rally

One unprecedented aspect of the deal is that Russian Federation, a non-member state, has agreed to cut its own production by 300,000 barrels daily.

The Organization of the Petroleum Exporting Countries (OPEC) has managed to commit its divided members to reduce world oil production for the first time in eight years, reports Bloomberg.

“We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.”, Goldman Sachs said.

In Asia, OPEC’s biggest customer region, oil importers made clear that they would not be happy with an artificial supply cut that hikes prices, and that in case of a cut they would seek more supplies from outside OPEC.

OPEC ministers agreed Wednesday to cut crude-oil output, scrapping a strategy to squeeze USA competition through high supply that had backfired by gutting prices and draining the cartel’s own economies.

OPEC produces almost one-third of oil in the world at approximately 33.6 million bpd.

OPEC members reached a deal on November 30 to decrease oil output by 1.2 mb/d – a huge step which led to 8.5-percent growth in oil price.

The agreement has sparked a more than 10 percent increase in oil prices to above $50.

“OPEC, it seems, has gone for the most bullish option”, said Tamas Varga, analyst at London brokerage PVM Oil Associates.

Novak also said Azerbaijan, Kazakhstan, Mexico, Oman, Bahrain and other non-OPEC producers could join the deal.

There is also uncertainty about non-OPEC producers’ contributions.

Higher prices, however, are likely to cause more US shale producers to increase production. Drilling fell off after oil prices started to slide in mid-2014. A barrel of oil contains 42 gallons.

“There is a real risk that higher prices could reactivate more dormant shale oil”, said ANZ Research, which expects global oil prices to hit strong resistance at around $60 a barrel in early 2017.

USA light crude oil rose back above $50 briefly before easing to $49.54 a barrel, up 10 cents on the day.

Others noted that the cuts could leave the field open for other producers, especially USA shale drillers.

Financial adviser Mark Teed of Raymond James Financial told 22News, why OPEC would want to pull back their oil production.

OPEC President, Mohammed Al-Sada, who announced the resolution on Wednesday at the end of the body’s 171st meeting in Vienna, Austria, said the adjustment in output would be shared among all other members of the group, to bring their ceiling to 52.5 million barrels per day.