Oil prices have doubled in a year. Here’s why

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It’s a good day for OPEC.

Data released on Monday by the oil group showed that its members have largely complied with the deal to cut output.

Confirming a notable one-year limit for OPEC, the organization was forced to come up with a plan to raise prices after falling to $26 a barrel in February 2016.

The price drop – to levels not seen since 2003 – was caused by months of growing supplies, slowing demand from China and the Western powers’ decision to lift nuclear sanctions. Western powers.

Since then, the market has had an amazing turnaround, with crude oil prices doubling to $53.50 a barrel.

Here’s how the major oil producers worked together to push prices higher:

OPEC Agreement

OPEC agreed to major production cuts in November, hoping to fix a global oil supply glut and support prices.

News of the deal immediately boosted prices by 9%.

Investors cheered even more after several non-OPEC producers, including Russia, Mexico and Kazakhstan, joined efforts to limit supply.

Crucially, the deal stuck. The OPEC report released on Monday showed that its members have – for the most part – delivered on their pledge to cut output. The International Energy Agency agrees: It estimates OPEC compliance in January at 90%.

UAE Energy Minister Suhail Al Mazrouei told CNNMoney on Monday that the results were even better than he expected.

Output cuts totaled 1.8 million barrels per day and are expected to run for six months.

Related: OPEC cut one of its ‘deepest’ output cuts

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Investors are optimistic

The OPEC deal took months to negotiate and investors really enjoyed it. The number of hedge funds and other institutional investors betting on higher prices hit a record in January, according to OPEC.

Widespread optimism is helping to fuel the upside.

Higher demand

Latest data from OPEC and IEA shows higher-than-expected global oil demand in 2016, fueled by stronger economic growth, higher car sales and colder-than-expected weather. in the last quarter of the year.

Demand is expected to continue to grow in 2017 to an average of 95.8 million bpd, compared with 94.6 million bpd in 2016.

The IEA said that if OPEC follows through with its deal, the global oil glut that has plagued the market for three years will eventually disappear by 2017.

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What’s next?

Despite the amazing growth, analysts warn that prices may not go much higher.

That’s because higher oil prices are likely to lure US shale producers back into the market. According to data from Baker Hughes, the total number of active oil rigs in the US stood at 591 last week. It was 152 over a year ago.

According to the OPEC report for January, US crude oil inventories have increased by nearly 200 million barrels above the five-year average.

Fiona Cincotta, analyst at the Cities Index.

More supply could once again put OPEC under pressure.

CNNMoney (London) Originally published February 13, 2017: 9:13 AM ET

https://money.cnn.com/2017/02/13/investing/oil-prices-opec-deal/index.html?section=money_news_international Oil prices have doubled in a year. Here’s why

Edmund DeMarche

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