17 March, AtoZForex, Lagos – Oil rallies to 2016 high, now trading all the way up to $41. The rally has been inspired by the weaker dollar, as well as expectations of a potential output freeze when some of the world’s biggest producers, including OPEC and non-OPEC members meet next month to discuss supporting the market.
First global oil deal in 15 years?
The meeting could birth the first global oil deal in 15 years. Already, a preliminary deal was reached in February between Saudi Arabia, Qatar and Venezuela, including non-OPEC Russia. They agreed to freeze output in an attempt to combat the excess supply that has caused prices to slide from levels above $100 seen in mid-2014. The impending April 17 meeting is seen as a positive step. Oil broker PVM said the meeting was “an encouraging step” but is skeptical and concerned that the freeze deal, which ministers have said is based on January 2016 output, may not be sufficient to prop up prices sustainable.
“It is hard to see such a meeting reaching an agreement that is price-supportive because these producers are discussing the prospect of freezing oil output at historically high levels,” Tamas Varga of PVM said in a report
What is driving the oil price rally?
As oil rallies to 2016 high, the major driver of higher prices still seems to be the potential oil output freeze agreement between OPEC and non-OPEC members. Also, the cheaper dollar has made it less expensive for foreign buyers to finance their oil purchases, which has contributed to the crude oil rally.
See also: Commodities self-defeating rally
Clamor for oil output freeze
Less wealthy OPEC members like Nigeria and Ecuador have been clamoring for a solution to the oil glut, as prices sit near 13-year lows. Having been one of the hardest hit countries by the fall in oil prices, Nigeria’s President Muhammadu Buhari is scheduled to meet Saudi Arabia’s King Salman, with analysts speculating that Africa’s number one oil producer’s president will offer his support for a freeze in output.
Azerbaijan would join producers in freezing production, ANS TV reports, citing Rovnaq Abdullayev, president of state-run Socar. A massive AZN devaluation is one of the consequences of cheap crude oil, as the oil dependent nation got hit hard by the low oil price.
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