Oil investors are cheering and oil prices are on the rise Friday following a production cap announcement from OPEC.
What Happened
At its meeting in Vienna Friday, OPEC announced that it will begin to raise its output but did not provide details about the extent of the hike. OPEC only said that it will no longer be cutting output beyond the 1.2-million-barrel-per-day cut it announced in November 2016. OPEC said it will not exceed 100-percent compliance with those previous decreases after cuts peaked at 152 percent — or 1.8 million bpd — in May 2018.
The Wall Street Journal said the agreement is to boost output by about 600,000 barrels a day and citied people familiar with the matter.
Why It’s Important
The vagueness of the potential production hikes is a bit disappointing to investors, but the idea that OPEC is no longer concerned about the negative impacts of increasing production is a positive sign that the global oil markets have stabilized.
The price of WTI crude oil surged 3.5 percent to nearly $68/bbl on Friday morning, and the United States Oil Fund LP (ETF) USO gained 3.4 percent.
Analysts are estimating OPEC will increase its production by between 600,000 and 800,000 bpd. Clearly, the market was fearing a more aggressive production increase. The market also likely saw commentary from Saudi Energy Minister Khalid al-Falih on Friday as bullish as well. Al-Falih said there will be no “immediate flood” of oil into the market.
What’s Next
Oil investors will be watching to see just how aggressive OPEC will be with its production hikes and whether analyst predictions of between 600,000 and 800,000 bpd are correct.
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