OPEC – The Agreement

OPEC members have jolted the oil market this week after an agreement to cut production by 1.2 million barrels per day. Crude was hovering around $51 yesterday, jumping around 8%.

The upward trend is not imperishable however, as prices may wane under the two questions lingering on the minds of investors: Will OPEC members deliver on promises made to cut production? And will non-OPEC members spoil their rival’s mission?

OPEC have hinted that their deal is conditional on non-OPEC members also decreasing output. Refusal of non-OPEC members to hold up their end of the bargain would once again push the price of oil downwards, to cooperate could mean that the trend would reverse.

Historically, agreements between OPEC and Russia have been unsuccessful, leaving the reputation of their latest harmonious effects tampered. If both OPEC and non-OPEC stick to their requisite, then the rally on oil should last. If not, a sell-off could ensue.

Two years ago, OPEC declared a price war on America. Today, the group’s outlook is dwindling as conflict between the rivals has ruptured profits, unlocking the market to American frackers. Furthermore, the more the price of oil increases, the more likely it will be that the US shale producers will want to claim a slice of the pie and turn their pumps back on.