advertisement
Facebook
X
LinkedIn
WhatsApp
Reddit

Exness Expertise – How OPEC cutting oil production impacts the commodities market

Written by Nikita Buzhor, content specialist, on behalf of Exness.

Traders who use meta trader 5 can get extra profits when trading oil with Exness. Oil prices continued to rise on Monday, briefly gaining more than 4 percent after OPEC+ decided to slightly lower its crude production targets for October.

How can you use this fact? With Exness it’ll be so profitable.

Exness broker is an online platform that enables traders to buy and sell foreign currencies, or forex. It is a type of online broker that deals in stock, bonds, futures, and CFDs (contract for difference); and now, forex as well. Exness offers all the necessary tools and platforms for traders to carry out forex trading activities  easily and smoothly. 

There are several reasons why traders choose Exness forex broker. One of which is that it is one of the cheapest online brokers in the market today. Another reason why many traders select Exness forex broker is because it offers them multiple trading platforms to use. 

Negotiations

After nine weeks of tense negotiations, OPEC’s three most prominent oil-producing members — Saudi Arabia, Iraq, and Iran — settled their differences over the levels each agreed to limit its production.

This is the first deal to reduce total production that the cartel has been able to conclude since 2008. The consultations on freezing were conducted with varying success for almost a year. 

For the first time, this initiative was proposed following a meeting in Doha on 15th February between Russian Energy Minister Alexander Novak and his colleagues from:

  • Saudi Arabia,
  • Qatar, 
  • Venezuela. 

If you trade with the Exness broker, which is one of the brokers with zero spreads accounts, you should know that the parameters of the deal are given in the agreement published on the OPEC website.

The agreement is designed for six months, which can be extended depending on market conditions. Aggregate production in the organisation will be reduced to 32.5 million barrels. per day. 

This is a decrease of 1.2 million barrels. per day compared to the average daily production in October, as planned at the previous meeting in Algiers at the end of September. 

Another 600 thousand barrels. per day production previously agreed to reduce countries outside the group. Bloomberg reported that consultations with them are scheduled for 9th December, citing one of the delegates.​

Three questions about OPEC

Saudi Arabia will limit oil production at 10.06 million barrels. per day (against 10.54 million barrels per day in October), Iran — at 3.79 million barrels. per day, Iraq — at the level of 4.35 million barrels daily. At the meeting, the ministers approved the suspension of Indonesia’s membership in the organisation. 

Its quota will be distributed among other group members, Al-Arabiya TV channel reported, citing a source in the oil club. Libya and Nigeria were exempt from production cuts.

Previously, this possibility was due to the difficult economic situation of these countries. OPEC will create a committee to monitor the implementation of the terms of the deal. It will include Venezuela, Kuwait, and Algeria, and two non-OPEC countries.

“With its decision OPEC sent a signal to skeptics who talked about the death of OPEC,” Amrita Sen, chief oil analyst at British analyst Energy Aspects, quoted Bloomberg as saying. “The group wants to reduce the volume of oil reserves.” 

“The agreement parameters are convenient for all participants in the transaction,” Jeff Curry, head of Commodity Market Research at Goldman Sachs Group, quoted the agency. “All stakeholders should consider this a success.”

Impact on Prices

The OPEC decision triggered a rally in the oil market. Benchmark Brent jumped on Wednesday by almost 8 percent, from $46.38 to $50.02 per barrel, WTI rose by 8.6 percent, from $45.23 to $49.12 per barrel. But the OPEC decision came too late to have a lasting impact on prices, said Hamza Kan, head of the commodity strategy at ING Bank.

“In the next six days, the immediate reaction could be a continued rise in prices as the numbers are quite positive and promise a sharper decline than expected,” Bloomberg quoted Khan as saying. 

“Once the initial euphoria subsides, it will be time for the US shale producers to ramp up production as this decision means Christmas is 26 days ahead of schedule for them.” 

The fact that OPEC refrained from cutting production for so long played into the hands of US producers, who were able to cut costs and adjust to produce oil at $40 a barrel. So the OPEC decision was too small and too late, allowing US producers to carve out a niche, Khan concluded.

Market Implications​

Exness managers are always aware of the market’s tendencies. So, OPEC’s statement on a significant reduction in production, to 32.5 million barrels per day, could push oil prices up $5 or more in the coming days, analysts at Morgan Stanley, led by Adam Longson, predicted in their November 28 review.

The effect will be even more substantial if supported by solid statements from countries outside OPEC.

It is unlikely that the agreement reached will eliminate excess oil in the market — according to the group’s calculations, to balance supply and demand, OPEC’s total production should not exceed 31.9 million barrels. per day in the first half of 2017, but it opens up the possibility for other countries to join the deal, primarily Russia, the largest oil producer outside OPEC.

Protracted negotiations

At the same time, the head of EU diplomacy, Josep Borrell, said on Monday that he was “less confident” in a rapid conclusion of the negotiations to save the 2015 Iranian nuclear agreement, of which he is the coordinator.

Hopes of a revival of the agreement, and with them the lifting of part of the sanctions against Tehran leading to the return of Iranian oil to the market, had been revived last week before being showered by the United States.

On the natural gas market, prices exploded on Monday, after the announcement of the complete shutdown of the Nord Stream 1 gas pipeline, which was to resume service on Saturday after maintenance.

The Dutch TTF futures contract, the benchmark for the European market, was trading at €242 per megawatt-hour (MWh), soaring by nearly 13 percent, the price surge compensating in one session for part of the plunge of the previous week.

Nord Stream 1 will finally be “completely” stopped until the repair of a turbine of this vital pipeline for the supply of Europeans, announced Gazprom, invoking the discovery of “oil leaks” in the turbine during the maintenance operation.

Not enough to justify, from a technical point of view, the stoppage of the gas pipeline, according to the manufacturer of turbines, Siemens Energy.

With this new closure, “the European energy crisis has entered a new critical phase,” warns Susannah Streeter, an analyst at Hargreaves Lansdown. “These are fears of the worst-case scenario European leaders had prepared for.”

For Pierre Veyret, an analyst at ActivTrades, this new interruption of Russian deliveries via Nord Stream 1 comes “in retaliation” against the cap on the purchase price of Russian oil decided on Friday by the leaders of the G7 nations.

The Kremlin assured Monday that the stoppage of deliveries was the sole fault of the West because their sanctions prevent the maintenance of gas infrastructure.

OPEC+ fears prolonged price volatility fuelled by weak macro sentiment, tight liquidity, and restored lockdowns in China, as well as the uncertainty of a potential US-Iran deal and efforts to cap the price of Russian oil.

Prices have also slowed down a potential increase in supply from the return of Iranian crude to the market if Tehran can renew its 2015 nuclear deal with world powers.

At the same time, Russia announced that it would stop oil supplies to countries that support the idea of capping Russian energy prices because of the war in Ukraine.

[Image – Photo by Zbynek Burival on Unsplash]

advertisement

About Author

advertisement

Related News

advertisement