Oil prices have jumped to a 30-month high after 24 oil-producing countries met and agreed to limit their output. Futures spiked two days ago after OPEC President Khalid al-Falih secured a deal among 24 oil producers at a meeting in Vienna on Thursday. It is unknown how long it will be before this price hike will reach the consumer.
OPEC Extends Oil Production Cut to 2018
The 14 members of OPEC plus Russia and nine other oil producers have extended a deal to keep a certain amount of crude production off the market until 2018. It is believed that this ‘certain amount’ is 1.8 million barrels per day. This agreement was reached in an attempt to overcome the current glut in crude oil.
This crude oil glut is partially, but not exclusively, due to the US continuing with its fracking program. This program will put shale into a market that does not need any new oil sources which would create a glut.
Oil Prices Under Threat from US Production
The original agreement to limit oil output was agreed by OPEC, Russia and others back in last winter. The agreement was made in an attempt to reduce a level of output that was significantly reduced prices. The agreement made sure that prices would be maintained, but now the US and others are threatening this price stability with increased production of oil from alternative sources.
Oil prices reached a high on Friday, US West Texas Intermediate Crude reaching $58.38 by 1115 ET Friday. This is a 1.7% (or 98 cent) increase. The highest price for West Texas Intermediate crude this year was $59.05, so this is not far off it.
International Brent Crude rose to $63.74 barrel, a 1.8% ($1.11) increase. Last month’s high was $64.65, not a great deal more than this week’s high.
Libya and Nigeria in Line With OPEC Restrictions
It appears that Khalid al-Falih has had success in his attempts to persuade Libya and Nigeria to reduce production levels. These two countries have up to now been exempt from the OPEC deal. For them now to cooperate is certainly a massive step for OPEC, and for al-Falih in particular.
However, prices have continued to fall. This is mainly due to questions over Russia’s commitment to a further nine month extension to production limits. Only time will tell OPEC and Russia get along, and the US will do its own thing!