OPEC to Decide on Production Limit in 2017

By Parth Parikh
Money and Investing Writer

When people talk about commodities, the conversation at some point or another leads to oil. In the past few years, oil prices have moved so dramatically that markets have had consistently poor weeks and months.

Lately, though, oil has been giving  investors something to look forward to, as WTI Crude Oil (NYME: @CL.1) has reached $51.58 per barrel, its highest point since October of last year.

Many are glad to see oil reach a high level, even though this has become the new norm after oil fell from its previous peak of $91.37 in the middle of 2014.

One of the bigger reasons why oil has come up to nearly $60 per barrel from its lowest point of $36.41 in January of 2016 is the new OPEC deal to cut the amount of oil outputs.
This has been something that has not been done in a very long time.  OPEC is the committee of oil-producing nations that manage the amount of oil that is being produced on a monthly basis.

For the past year, due to disagreements and other circumstances, the OPEC nations could not decide on a limit of oil being produced, which meant that there was constant drilling for oil and there was no specific amount that an individual nation had to reach.

The result of constant drilling and producing barrels of oil was a surplus, which meant there was much more oil being made than the amount of oil that was normally used on a daily basis.

A surplus of oil in the market plunged prices from the $91 price in 2014 to $59.33 in 2015 and then from $65.40 in mid-2015 to the $36 price in early 2016.Many nations were not pleased to see oil plummet that far in a two-year span and those who are very reliant on oil for trade and other businesses faced tremendous suffering.

To fix the economic troubles going on in their nations, many of the smaller oil-producing nations called on the top oil producers like the United States, Russia and Saudi Arabia to stabilize oil prices and to find a new normal for oil.

Talks continued for the OPEC nations until an informal September meeting in Algeria created a break-though in oil production.

At the meeting, the nations agreed to produce 32.5 million barrels of oil from the 33 million barrels being produced currently. This limit on oil production equates to nearly 700,000 barrels of oil being saved a day, which helps the larger and smaller producing nations.

The agreement was a huge step forward in stabilizing oil prices, but two countries stood in the way of having all the nations on board and confirming the limit in early 2017; Russia and Iran.

The concerns over the two nations’ willingness to comply were eased quickly as Russian Prime Minister Vladimir Putin told an energy congress in Istanbul that a limit on oil production was the only way to stabilize oil prices and the energy sector overall.

Iran was also willing to comply as President Hassan Rouhani said a stabile oil price would help settle the markets globally and stop the balance of the oil markets.

We now wait until next year to see if OPEC officially caps oil production and continue to let oil prices rise as they have been in recent times.

A version of this article appeared in the Tuesday, October 25th print edition.

Contact Parth at
parth.parikh@student.shu.edu

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