Oil (Brent) started to slump from the beginning of Tuesday, 2nd of December, it fell nearly from $44.30 per barrel to $42.55. Later that day the growth has begun and the price has almost came back to its previous levels, hitting the level of $44.24 per barrel on Wednesday, 3rd of December. This movement was mostly caused by the news that came from OPEC and a little surprise arriving from the US. Let’s find out more below.
What has happened and where does it all go?
Even if you trade Forex, it is nearly impossible to avoid skipping the news of the oil market and having your FX trades not influenced by the price change in this commodity. What we have seen over the course of the last 2 days was just a test of how low oil can go, as most of the traders are waiting for the news to come after today’s OPEC meeting. While everyone is mostly certain that OPEC will not cut its daily limit of oil production that is currently set to 30 million barrels a day, the main question is whether this ceiling will be raised?
The main reason why the price has actually came back to almost its identical state is because most of the market players and, a few OPEC members that have spoken to public, are predicting the output level to stay unchanged. Some of the analyst have even stated that today’s meeting could be seen as irrelevant due to the fact that after the recent China’s Iran deal resulted in a renewed oil supply contract, and hence is unlikely to result in a trimmed oil production from Iran.
While some OPEC members like Saudi Arabia would like cut the production slightly, it would probably do it if only other members will trim their production rates accordingly too. Yet this is hardly unlikely.
On the side note, it is always possible to expect various surprises from OPEC, as most of the members would like to see the price growing, even while the demand is dropping. Once there are more clear thoughts about the commonly wished oil price and the production limits are fairly distributed among the OPEC members, we will then see a start of an upward trend in oil. However, before this happens we should certainly see oil being tested another time.
Should today’s meeting bring no change to the caps on oil production, the price is expected to grow some $2-3 per barrel, while a decreased cap could provide even a higher growth.
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