U.S. crude oil futures for February delivery were last seen up 0.71% at 54.28 a barrel in early trading Wednesday, adding to Tuesday gains. Prices of crude oil futures rose 1.66% to close at $53.90 on Tuesday.
OPEC to embark on output cut
Members of the oil cartel, OPEC, together with at least 11 non-OPEC producers are set to begin limiting their production levels in January. The target is to take out 1.8 million barrels from daily oil production, a measure aimed at stabilizing oil prices that have stayed depressed for more than two years.
OPEC members alone committed to collectively eliminate 1.2 million barrels of oil a day from the global market by scaling back their output. The agreement by OPEC members to cap production was landmark development. Earlier efforts to reach a similar deal flopped several times amid divisions among the cartel members. Disagreements within the cartel mainly pitted Saudi Arabia against Iran. But as oil prices continued to deteriorate, the two warring producers decided to put aside their differences to save the industry.
Nonmembers of OPEC, which include Russia, are expected to cut their output by 0.6 million barrels a day. Russia alone could contribute half of the production cut required from non-OPEC producers.
With Oil prices rising steadily since the output cap deal, some analysts predict prices could hit $60 a barrel as early as 1Q2017. Oil prices sank to a low of $27 a barrel as producers in the Middle East and the U.S. flooded the market with oil, causing a major supply glut.
While oil importers benefited from the price collapse, exporters faced dwindling fortunes. From Nigeria to Saudi Arabia, economies funded by oil dollars, government budgets came under pressure amid depressed crude prices. Now, Saudi Arabia plans to spend $237 billion on national budget in 2017.
U.S. producers could tilt the scale
Although analysts expect crude prices to rise as a result of the OPEC production cap deal, there are risks that a slight uptick in prices could entice U.S. producers to restart idle rigs. But that could result in another supply glut, undoing the benefits of output cut by the OPEC and its collaborators.
OPEC members could also lift caps on their production when prices begin to edge up. But a premature lifting of the production caps could roil the oil market again.
Gold edges up slightly
Gold continue to grab attention despite high-interest rates in the U.S.
Although investors have been avoiding gold in favor of yield-bearing assets in the wake of interest rates hike in the U.S., some traders are still showing commitment to the yellow metal. Gold futures for February delivery were last seen up 0.12% at 1,140.15 a troy ounce on Wednesday, adding to the 0.5% gain registered on Tuesday.
Gold buying has been linked to some investors betting on inflation in the U.S. following recent rate increase. Others could be trying to hedge their portfolios amid concerns that Congress could block Donald Trump’s proposals for an expanded infrastructure budget. The dollar and yield on U.S. bonds have soared since Trump won the presidency last month as investors bet on economic prosperity because of Trump’s promise to increase government spending on infrastructure projects.
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