Oil steadies above $50 a barrel: No more glut worries?

Oil steadies above $50 a barrel in the wake of the Algeria OPEC meeting oil output cut deal. Some experts doubt the effectiveness of the agreement. Will the rally last?

3 October, AtoZForex Oil prices soared on Monday to the highest level since August on last week’s oil output cut agreement by the Organization of the Petroleum Exporting Countries (OPEC).

Oil steadies above $50 a barrel

Even thought the market experts believed that the existing oil oversupply will appear as an obstacle for the oil uptrend, the Brent crude futures for delivery in December went up 42 cents to $50,61 per barrel. West Texas Intermediate (WTI) strengthened 37 cents up to $48.61 per barrel.

OPEC deal from the meeting in Algeria calls for oil output cut of between 32.5 million barrels per day (bpd) and 33 million bdp from about 33.5 million bdp. The details of the meeting are about to be discussed further at the next OPEC meeting this November.

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Doubts about the OPEC cut deal played a role in driving the oil prices above $50 a barrel for the first time since August. Ole Hansen, the Saxo Bank manager, has commented:

“The lukewarm response to the OPEC deal from analysts (rightfully so) probably attracted some premature selling, with technical traders currently in the driving seat. Oil always runs ahead of itself and this time round is no exception.”

Barclays believe in no oil prices crash

As oil steadies, market experts see the downside risk to oil prices in the possibility of the weak effectiveness of the deal on Wednesday. In its note to clients, Barclays has stated the following:

“OPEC has created its own Q4 risk to oil prices … In raising expectations of a November deal to cut production, it also risks a steep price decline should it fail to achieve its goal of cutting output back to less than 33 million bpd.”

In spite of that, the bank stated it did not anticipate a price crash similar to last year in the wake of the rally earlier in 2015. Barclays believe oil prices are supported by the growing economic developments in Asia, the rise in the investor interest in oil and the slide in oil supplies.

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