Based on rumors of a deal between the major exporters, the price of oil rose on Friday.
With long span of falling oil prices, the news that the major exporters might be teaming up to cut production comes as welcomed news to investors. A price of Brent leaped upward to $34.07 from a lower number of $27.10 a barrel on January 20. This upward swing will be the fourth straight session of gains. In addition, US crude jumped 26 cents to $33.48 a barrel and settling upward of 92 cents translating into a 2.9% increase to $33.22 a barrel on Thursday.
Russia comes into play here as because of their recent announcements that Saudi Arabia had stated it might cut oil production of up to 5%. Russia also chimed in on other factors that led speculators to believe a group effort to cut production was at hand, however, the likelihood of that has yet to be seen as no official announcement of an OPEC and non OPEC alliance would take place.
If indeed a 5% drop in production from Saudi Arabia and Russia in in the offering, a reasonable assumption of bringing the market to a balance is predictable and comforting. It is however, highly unlikely to happen.
In addition, Iran shows no signs of slowing down its production of oil that has led to a glut. It’s like as if Iran is trying to undermine the prices just to anger the US and speculators and investors.
Lower production has to be universal, not just one country or a few countries. Saudi Arabia and Russia are two of the biggest producers and even if they cut production it won’t be enough to balance things out. They need all OPEC and non OPEC countries to join in or there will be no effect. Certainly the two powers could cut production but then someone else like Iran would pick up the slack as we have seen of late.
The US is also producing more oil and won’t fall in step with Russia nor Saudi Arabia. With more research going into finding and producing oil, dependence on foreign sources is dwindling. Should the US even venture into more offshore drilling, the market prices would tumble considerably.
There are several factors at work here, some that can and cannot be reigned in. If at all the OPEC and non OPEC countries do team up, it will send prices zooming up but then there’s still the prospect of countries like the US and Iran not playing ball. With the election yer going on in the US, if the Democrats maintain their lead, the oil industries domestic and foreign are in for quite a battle for supremacy.