Good day for OPEC.
Data released by the oil cartel on Monday showed that its members are broadly following their agreement to cut production.
The confirmation caps off a remarkable year for OPEC, which was forced to devise plans to raise prices after falling to $26 a barrel in February 2016.
The collapse in prices to levels not seen since 2003 was caused by months of growing gluts, slowing demand from China, and a decision by Western powers to lift nuclear sanctions on Iran.
Since then, the market has made an astounding recovery, with oil prices doubling to $53.50 a barrel.
Here’s how major oil producers worked together to push prices higher.
OPEC Agreement
OPEC agreed in November to cut production sharply, hoping to limit the global oil glut and support prices.
News of the deal immediately pushed the price up 9%.
Investors cheered even more after several non-OPEC producers, including Russia, Mexico and Kazakhstan, joined efforts to curb supply.
Crucially, the deal has stalled. An OPEC report released on Monday showed member states have delivered on their promises to cut production in most cases. The International Energy Agency agrees, estimating his OPEC compliance rate at 90% in January.
UAE Energy Minister Suhail Al Masrowi told CNNMoney on Monday that the results were even better than he expected.
The reduction in production will total 1.8 million barrels per day and will run for six months.
RELATED: OPEC pulls off one of ‘most severe’ production cuts
investors are optimistic
The OPEC deal took months to negotiate, but investors love it. The number of hedge funds and other institutional investors betting on rising prices hit a record high in January, according to OPEC.
Widespread optimism is driving prices higher.
higher demand
Global oil demand in 2016 exceeded expectations, according to the latest OPEC and IEA data. This was due to strong economic growth, higher car sales and a colder-than-expected final quarter of the year.
Demand is expected to increase further in 2017, averaging 95.8 million barrels per day, compared to 94.6 million barrels per day in 2016.
The IEA said the global oil glut that has plagued markets for three years could finally be lifted in 2017 if OPEC sticks to the deal.
Saudi oil minister: Shale won’t make you sleepless
what’s next?
Despite the surprising growth, analysts warn that prices may not be all that high.
That’s because higher oil prices are likely to bring U.S. shale producers back into the market. Last week, the total number of operational oil rigs in the United States was 591, according to Baker Hughes data. 152 more than a year ago.
U.S. crude oil stockpiles exceeded their five-year average by nearly 200 million barrels in January, according to an OPEC report.
“This significant increase in inventories is the result of a strong supply response from U.S. shale producers, who are not involved in the OPEC agreement and have taken advantage of the resulting price increases to boost production. ‘ said Fiona Cincotta. city index.
More supply could put OPEC under pressure again.
CNNMoney (London) First published February 13, 2017: 9:13 AM ET
