Oil prices continue to climb, reaching levels not seen since mid-2015. Both WTI, the US benchmark and Brent, the international benchmark for crude have experienced a week of continued gains. WTI is currently trading at $52.60 and Brend is hovering around $55.56 as of 1/9/17, 10:13am ET. This is a welcomed rally for the oil market that was facing tremendous pressures in 2016.
The Organization of Petroleum Exporting Countries (OPEC) seems to be keeping their promise to cut production and it has restored faith in the oil market. Oil prices climbed nearly 9% in December but many traders feel as though this could cause a new set of problems. Countries that are not included in OPEC’s deal may feel the need to increase production to take advantage of newly profitable prices.
OPEC’s output cut started on January 1st as they pledge to reduce production by 1.2 million barrels a day. Other major produces and non-OPEC members are cutting production by another 600,000 barrels a day. This delicate agreement depends on every single participating nation to keep up their end of the deal. If one begins to overproduce, others will surely follow along as they fear losing their market share to other nations.
There are some OPEC member countries that are exempt from curbing production. Nigeria and Libya were some of the countries that were hit hardest from the massive fall in oil prices. They have been ramping up production as oil becomes profitable again.
“With output in Libya and Nigeria probably rising this month to some 700,000 barrels a day and 1.7 million barrels a day, respectively, we estimate that actual total OPEC output in January could be closer to 33.5 million barrels a day than to the official ceiling of 32.5 million barrels a day,” according to consultancy FGE.
These developments could have a huge impact on the manufacturing industry. The oil industry is one of the heaviest consumers of large industrial components. United States producers are not bound by any oil production restrains. This fact could lead to a boom in production across the nation and in turn lead to increased buying of industrial components for oil exploration and drilling rigs.
Overall the OPEC production cut seems to be having the intended effect. Some concerns still exist but as the oil market continues to strengthen, these may subside. It is absolutely vital for all those that involved to continue to play their part in order to perpetuate this recent rally.