Did OPEC Stop Oil Price From Falling?

December 13, 2018 | AtoZ Markets- During the last 2 months, oil had wiped out about half of the gains it had made during the last 2 years. Trading has been extremely volatile. Will the situation change or should we expect further declines? Let’s lay out the positive and the negative factors for the crude oil price.

Positive factors for oil price

  • The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia announced on Friday that they would cut oil supply by 1.2M barrels per day (bpd) from January.
  • The El Sharara oilfield in Libya that produced 315K bpd was shut down.
  • Baker Hughes reported that the number of active oil rigs in the United States decreased by 10 to 877 last week.
  • Although there are exemptions from the US sanctions on Iran, the nation’s oil production is squeezed.
  • The lack of a new pipeline out of America’s Permian Basin slows production growth in the shale region.
  • China, the world’s biggest oil importer, over the weekend reported November crude oil imports rose 8.5% from a year ago. Strong demand was driven by Chinese purchases for strategic reserves and by new refineries.

Negative factors for oil price

  • US oil output has increased by 135% since 2008. According to the Energy Information Administration, the US became the largest crude-oil producer in the world this year. Bloomberg reported last week that the US just became a net oil exporter for the first time in 75 years.
  • OPEC may be slowly losing significance in the oil market as the US and Russia are taking the lead. Russia is less concerned by lower prices than OPEC is, so compliance problems may arise with time. In addition, the current deal doesn’t specify country allocations and excludes Libya, Venezuela, and Iran from the curbs.
  • There are signs of the global economic slowdown: China, the United States, and Japan have recently reported weaker economic growth figures. Economic slowdown means lower demand for oil in the future.

The OPEC’s move to limit supply will likely help the market to become more or less balanced in the upcoming months. In other words, the oil price should finally get some support. It’s possible to expect that the sharp decline of oil prices will slow down. At the same time, with the global economy going through hard times, it’s not easy to see oil reversing up. As a result, it’s possible to expect sideways trading between the key technical levels.

Brent clearly needs to return above 64.00 to get a chance to recover to 70.00. Support is provided by the 200-week MA at 57.00.


The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of FBS.com, nor should they be attributed to FBS.com.

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