After a recent meeting of OPEC, the organization has agreed to continue with the production cuts for another nine months.
Last Thursday morning, Bloomberg reported that major oil producers have all agreed to continue with the ongoing efforts of reducing oil production. This is a strategic response to the supply and demand of the oil market. According to a report, there is an oversupply of oil in the market which causes the oil prices to fall. OPEC's meeting was held in Vienna, and the reports came from an official who wants to stay anonymous.
According to Reuters, the delegates of OPEC confirmed that the oil production cuts would continue until March of 2018.
Essam al-Marzouq, the Kuwaiti Oil Minister, said that OPEC came to an agreement on cutting oil production to approximately 1.2 million barrels a day.
However, the continued oil production cuts are not surprising to many. In fact, according to some experts, they were expected. Numerous major players of OPEC agreed to the idea even before the recent OPEC meeting.
Russia and Saudi Arabia are not part of the OPEC but are still considered to be major players in any agreement. Both countries support the idea of extending the oil production cuts until March 2018.
According to Bloomberg, some of the OPEC members will discuss the oil production cut extension with other non-OPEC members this coming Thursday.
It seems that the markets are still not happy with the recent oil production cut agreement. In fact, major benchmarks are reporting that oil prices have decreased by as much as 3%. The decrease in prices is a reflection of investors’ disappointment. Investors were expecting a deeper oil production cut or an oil production cut that would extend longer than nine months.
According to an article in The Guardian, oil may be considered as a precious and limited resource, but as of the moment, it seems we have too much of it. Oil prices just recently hit a new low since April. The oil's recent price decline is mainly due to continuing oversupply. Also, the world is now concerned with the global demand for oil. Another reason is the negative price sentiment. Furthermore, experts are saying that the trend is going to continue in the future.
When looking at the history of oil prices, oil gained an upward momentum last June. The cause for such rise was primarily due to shortages. At the time, there was an oil worker’s strike in Kuwait, heavy production decrease in Nigeria, and wildfires in the Canadian oil fields. The issues were resolved and oil supply began to pile-up.
Since oil prices are still dictated by the law of supply and demand, a stockpile of oil inventory is not a good thing. As of the moment, major oil cartels are producing more than what the market can consume. Hence, the dwindling of prices.