Oil prices rebounded on Monday in volatile trading due to the announcements from major oil-producing countries that OPEC and non-OPEC supply cuts shall be extended into 2018. Saudi Arabia’s oil minister Khalid A. Al-Falih said during an interview that he expected OPEC and its partners to extend their deal for supply cuts into 2018 to eliminate a global glut. Benchmark Brent Crude rose by 0.5% or 27 cents at $49.37 a barrel, and U.S. light crude also increased to $46.43 a barrel by gaining 21 cents.  The prices for West Texas Intermediate crude also had a modest rebound to $47 a barrel.

Growing Oil production from non-OPEC countries like US shale oil boom has caused an enormous pressure on oil prices and investors were concerned that global supply glut is not declining as fast as expected.  The US crude oil production has increased by more than 10% since mid-2016 and reached the levels close to that top oil producers Saudi Arabia and Russia. The US is currently producing around 9.3 million barrels per day and this is their highest production output since August 2015. U.S. energy companies have continued to extend their oil drilling to minimise the dependency on OPEC oil as per statements from Baker Hughes Inc, the energy services firm on Friday. The market weakness resulted in a selling spree from the investors and they have cut bullish bets on Brent to the lowest level since November.

This has also undermined the efforts of OPEC and non-OPEC nations like Russia to control global oil supply with an output cut of 1.8 million BPD (barrels per day) during the 1st half of 2017. The comments from major oil producing nations that cuts might last till next year resulted in a modest rally of the oil prices and oil futures rose on Monday. Brent crude surged by 27 cents at $49.37 a barrel and the contract traded in a band between $45.73 and $46.98. Such sharp swings in the oil prices are an excellent opportunity for traders to make money using binary options strategies. They can accurately speculate the price movement of the oil based on the market news and gain significant profits.

Khalid Al-Falih, Saudi Arabia’s oil minister announced at the Asia Oil and Gas Conference in Kuala Lumpur on Monday that he hopes to extend the production cuts into the 2nd half of 2017 and possibility into next year as well. OPEC members are meeting in Vienna on May 25 to make a decision on extending agreement on production cut till next year. He also assured that OPEC members will do whatever it takes to rebalance the oil market and ensure that oil prices don’t fall down drastically.  His announcement about the extension of production cuts caused some hope among investors and resulted in a modest rebound in global oil prices. He stated that the recent downfall in oil prices was due to various factors like refinery maintenance and seasonal low-demand apart from the non-OPEC production growth, particularly that of United States.

Even Kuwait’s oil minister Essam-al-Marzouq expressed his accord about extending this agreement. Russia also showed its consensus in prolonging the cuts with other OPEC members beyond 2017. Jeff Currie, head of commodities at Goldman Sachs stated at an S&P Global Platts Conference in London this week that investors should go long on Oil since the market is already in a supply deficit.

But market analysts are feeling that OPEC members are just giving false promises and not actually taking any action to reduce the stockpiles. For instance, the head of Commodity research at Commerzbank – Eugen Weinberg stated that “The market is getting tired of hearing from OPEC how good they are, how compliant (with supply curbs) they are”. He also stated that “Those claims do not withstand the reality check with the inventories staying stubbornly high and non-OPEC production rising strongly.”

By Taylor Wilman