Oil prices diverse on Saudi Arabia OPEC deal commitment

Saudi Arabia OPEC deal commitment announcement has supported the oil prices. Yet, the increase in US production has limited the oil rally. What is next for black gold?

17 January, AtoZForex Oil prices appeared mixed on Tuesday, being driven by Saudi Arabia’s announcement that it would commit to its promise to cut the output. The initial oil cut agreement was designed by the Organization of the Petroleum Exporting Countries (OPEC) in September.

Saudi Arabia OPEC deal commitment drives oil prices

The oil prices were slightly supported by the remarks from Saudi Arabia. One of the key oil producers has announced it would stick to a commitment to limit the output. However, the increase in US production has limited the oil rally. Moreover, markets’ skepticism around OPEC’s compliance with the deal is weighing on oil prices.

Brent crude futures were trading at $55.76 per barrel at 0813 GMT, lower 10 cents from their last settlement. US West Texas Intermediate (WTI) crude futures advanced 15 cents to $52.51 per barrel.

Traders stated that the markets were supported by the key crude exporter Saudi Arabia’s commitment to the oil cut deal. As per the agreement, OPEC and non-OPEC oil producers have decided to cut 1.8 million barrels per day from the overall level of production. The plan implementation has commenced from the 1st January. A fuel broker at Freight Investor Services (FIS) in Dubai, Matt Stanley, has stated:

“The market genuinely seems quite happy here (around $55)…but people are watching with caution as the slightest hint of this OPEC/non-OEPC agreement going wrong is going to drive the market down.”

In spite of the overall market positive sentiment, crude futures dropped 5 percent since their early advanced in the beginning of January. This is due to the skepticism around the OPEC’s ability to rebalance the oil market and Russia’s willingness to comply with the promises.

Will OPEC deal eventually bring results?

Market analysts believe that while the US crude price is clearly above $50 a barrel, markets can track the supply-side response. This is pushing the oil production higher. Moreover, the refinery outages in the Middle East and Asia over the past week have pressured the crude oil.

In addition, market experts state that the steps to boost oil prices via a cut in production could be “self-defeating.”

Analysts also said that steps to prop up oil prices through a cut in supplies could be self-defeating. AllianceBernstein L.P. has stated:

“For each $10 per barrel increase in oil prices, oil demand will decline by 10 basis points.”

The company sees the downside risks, with the appetite growth in Asia steadily moderating.

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