Oil prices declined last Friday after Saudi Arabia, the largest producer in the Organization of Petroleum Exporting Countries (OPEC), said it is withdrawing from the cartel’s upcoming meeting.
However, that is not preventing some oil market observers from speculating that OPEC will be able to reach an accord to pare production, potentially boosting prices along the way.
Crude oil remained depressed in recent sessions on skepticism over OPEC’s commitment to freeze production as the energy market suffers from a global supply glut. The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, rose 2% last week.
Anticipating OPEC will announce and implement a production cut, Goldman Sachs raised its forecast for oil prices in the first half of 2017. A Bank of America Merrill Lynch research note also anticipates a supply cut is highly likely.
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production.
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Elevated levels of production remain an issue for oil as well. OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers.
The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. Russia has also signaled it might trim output as much as some traders have hoped for.
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“After resisting for weeks, Iraq’s Prime Minister said that his country will participate. “Iraq will cut its output to preserve prices,” Al-Abadi told reporters in Baghdad on November 23. Iraq was one of the largest stumbling blocks to a deal, so things are looking pretty good for some sort of agreement next week. If they succeed, the deal would take effect in January,” according to OilPrice.com.
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United States Oil Fund
