A Coordinated Deal Likely to Extend Crude Oil Prices Rally

Crude oil prices extended their rally during Thursday on the back of the optimism over the OPEC production deal. OPEC producers agreed to cut their production by 1.2 million barrels a day in their latest meeting, thanks to big production cuts from Saudi Arabia, Qatar, and UAE. Crude oil prices surged significantly since the announcement of a production cut deal, supported by the prospects that crude oil could hit $55 a barrel.

The crude oil price rally was also supported by the positive response from non-OPEC producers, as Russia said on Thursday that they would also reduce production, a first coordinated cut in the last 15 years.

Brent crude oil contracts surged 4.1% to settle at around $53.94 a barrel after hitting the highest level of $54.53 a barrel for the first time since July 27, 2015. U.S. crude also soared 3.3% to settle at around $51.06 a barrel, after touching a session high of $51.80 a barrel.

OPEC producers, which include the globe’s largest producers, pumps almost a third of global oil. Thus, their strategy to cut production by 1.2 million barrels will leave a huge impact on the market dynamics.

However, bearish analysts, including Goldman Sachs anticipate a lot of headwinds for crude oil prices despite a production cut deal. “We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.,” Goldman Sachs said.

On the other hand, bullish investors are expecting crude oil prices to perform well after an output cut deal. It appears that Saudi Arabia has dumped its strategy of flooding global oil markets with excessive production, as the kingdom’s economy has been falling sharply due to lower oil prices. Consequently, they are also stressing fellow producers to stabilize prices by staying firm on a production cut plan of 1.2 million barrels a day.

Alexander is an analyst for EconomicCalendar.com who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.