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OPEC Keeps Its Promise

Published on: 10/02/2017

OPEC continues to surprise us. Despite much doubt, the countries-exporters of oil managed to reach an agreement at the end of 2016 on cutting back the production of oil in order to stabilize the crude oil market and allow prices to go up. Even after their decision was announced, many analysts still remained skeptical that the organization would be able to keep its promise. Now, several weeks into 2017 it turns out that OPEC has been, in spite of all doubt, incredibly strict and faithful to its word.

According to the International Energy Agency OPEC achieved 90% of its January goals, which, although not perfect, shows a remarkable decisiveness among the oil-exporting countries. This development is quite significant because OPEC has had similar agreements in the past 30 years but the cartel has rarely kept them.

The original agreement is scheduled to last for six months. However, with the positive impact this has had on oil prices, some OPEC insiders are considering extending the deadline further.

Non-OPEC member states such as Russia and Oman have also demonstrated a willingness to cut down on the production of oil, showing significant reductions for January. If many oil-exporting countries continue to show such discipline, perhaps the oil prices could recover completely.

The price of American oil increased by 1% after IEA’s information was published. The trend toward a stabilization of the oil market has actually caught the attention of investors in the United States (where there have been no production cuts). It would be interesting to see how the US-OPEC price war is going to play out this time.

Regardless of the outcome, one thing is certain: oil will be one of the most talked-about trading instruments of 2017.

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