Large oil producers have reached an agreement to cut the global oil supply in the face of what they view as a global oversupply.
The move will lift prices, and OPEC evoked those economies hurt by a two-year economic slump such as Russia and Venezuela.
558,000 barrels each day will be removed from the crude oil market. OPEC agreed already to cutting 1.2 million barrels a day in cuts already agreed to by OPEC, representing nearly 2% of global oil supply, though expert analysts claim gas prices won’t skyrocket if done right.
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The cuts will be carried out over the first six months of 2017. According to the WSJ, it represents “an unprecedented level of cooperation among oil-producing countries that have been groping for a means of lifting lift oil prices out of a two-year funk.”
Leaders from those countries evolve underscore the importance of the decision. “It is truly a historic event,” Russian Energy Minister Alexander Novak said. ”It is the first time that so many oil-producing countries from different parts of the world have gathered in one room to accomplish what we have done.”
Russia will cut 300,000 barrels a day, a bulk of the cuts, in a nation where low oil prices generally hurt the economy. Reductions might be promised by 10 other countries, including Oman, Azerbaijan and Sudan.
There are still many questions left unanswered. “OPEC members themselves have a spotty record of enforcing their own agreements, and there is no legally binding way to deter producers inside or outside the cartel from cheating on their pledges,” writes WSJ.
Saudi Energy Minister Khalid al-Falih said: “This agreement leaves for countries to decide how to implement.” So, whether the move will be carried out the way experts say it should be – by cutting supplies in those nation’s already expecting to see a decrease in production – is unclear. That presents the question of whether the decision will introduce increased price volatility in the price of crude.
The oil producers have the same or more power over the market than the 13-nation OPEC. OPEC has not convinced non-OPEC oil producers to cut supplies since after the attacks on September 11. The deal on Saturday is larger than the deal after 9/11.
Saturdays marks the first time since the 1970s that a coalition of nations with more than half of the world’s oil supply have joined together to influence crude prices.
America’s oil boom in the past eight years led to a flood of the market, according to oil producing nations, with Saudi Arabia leading the way to cut production in talks. Crude prices fell to below $28 this year and economic disaster has rocked Venezuela and Nigeria. OPEC decided in November to cut production to bring prices back to higher levels.
As Ark Invest highlights, bitcoin has been less volatile than oil in the past year.
In the chart below, you see Brent crude has rebounded from its summer doldrums.
Meanwhile, Bitcoin has increased from $200 in the summer of 2015 to nearly $800 currently, likely to once again finish the year as the world’s leading recognized investment.
Images from Shutterstock and Ark Invest.