Brent Crude Oil Makes Sudden Rally As OPEC Countries Mull Low Output

Crude oil is a particularly unusual substance in that it is one of the only consumable commodities that institutions and private individuals widely trade across the spectrum of global markets, and it is a staple component as an energy resource in most aspects of everyday life, yet its value is maintained by a cartel made up of the central governments of the nations that extract it from the earth.

This combination of completely unique circumstances and operational conditions means that the requirement for crude oil to perform its task as a basis for fuels combined with the method by which the OPEC+ countries are able to control its price via aligning to reduce or increase production and distribution makes for an interesting marketplace.

This week, news surfaced across mainstream media around the possibility that the OPEC+ countries may consider an extension of the reduction in crude oil production and supply that is currently in place.

The current level of production and supply that has been set by the OPEC+ countries is subject to a reduction, which was agreed on in November 2022 during a meeting of the OPEC+ nations led by the Russian Federation. At that time, a reduction of approximately 2.2 million barrels of crude oil per day was agreed. However, this week, there has been some thought that the OPEC+ nations may consider extending this reduced amount of production into the second quarter of this year.

Fuel prices have steadily been rising on the consumer side, meaning that the cost of refined fuel oils has had to factor these reductions in, and perhaps motorists may have noticed that unleaded fuel and diesel oil for road vehicles have crept up in price very slightly over the past month or so, however, should the extension of a reduced output take place, the wider effect could make its way onto the financial markets, where oil is traded as a commodity.

Over the course of the past day, US Brent Crude Oil has risen in price dramatically. According to FXOpen charts, Brent Crude Oil concluded the trading day on February 26 at $80.51 per barrel, whereas it begins the trading day today at $82.24 per barrel.

Indicative pricing only

That is quite a significant increase over the course of a short trading period.

There is no indication regarding how long these supply restrictions may remain in place. Therefore, the perspective of analysts and market participants is varied. One possible reason could be that this is a standard measure to bolster prices at a time during which there are logistical and political issues taking place across the Middle East, which in some respects can affect the trade of goods as shipping companies have scaled back distribution of products which require transportation via the Red Sea. Therefore, the Middle Eastern contingents of the OPEC+ countries need to strengthen their revenues from oil sales.

Some analysis looks at the possibility of the cuts being in place for the entirety of 2024 - but this is pure speculation.

Currently, volatility in the oil market makes for interesting reading, especially given the geopolitical considerations surrounding many of the OPEC+ countries.

Text source: Forex Trading Blog

Commodities