Last month, the Organization of the Petroleum Exporting Countries (OPEC) agreed to limit production of oil by 1.2 million barrels per day in an attempt to raise crude prices. Although production has not yet been restricted, the agreement has already brought a rise in price from $26 per barrel in February to above $53 per barrel as of yesterday. This per barrel price marks a new high for the price of oil in 2016.
OPEC is set start cutting production in January of 2017. Additionally, a handful of non-OPEC countries, including Mexico, Russia, Oman, and Kazakhstan, have also agreed to limit their production of oil. As a result, the International Energy Agency expects the global surplus of crude oil to start declining in the first half of 2017.
Even with the agreement to reduce the oil surplus, the future of the global oil market is still far from certain. For instance, the surplus of oil will only be reduced if the agreeing countries abide by the agreement. Further, the countries have only agreed to cut production for six months, with a review of the impacts in May. The International Energy Agency indicated that the review serves as a warning that the countries may not agree to extend the limitation on production.
While OPEC and the other agreeing countries hope that the reduction of surplus in the global market will result in a rise in the prices, the countries do not want the price to rise too much. Their concern being that if the price is too high, then it may stimulate the United States shale industry to begin producing in large quantities again. The U.S. shale industry has already increased the amount of rigs in operation to 477.
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