Oil has continued its run to hit its highest point in two years, with Brent Crude reaching $US62.07 ($81.10) on Sunday, as continued positive sentiments and production cuts push oil prices north.
This return to strength marks a growth of 32 per cent from oil’s low for the year in June, when prices fell to $US46.89.
Macquarie analysts believe $US60 per barrel is likely to be the new price floor and could be a stabilisation price for oil, which has tracked a volatile path since the 1990s.
Oil has been on an upwards trajectory since both America and the Organisation of the Petroleum Exporting Countries (OPEC) agreed to cut production levels to “rebalance the market” in December 2016.
Earlier this year, 24 oil-producing countries began to cut output levels by 1.8 million barrels of oil equivalent a day, over an initial six month period, but quickly agreed to extend the deal to March 2018 in order to reduce oversupply and lower existing crude oil inventories.
OPEC nations soon ran above compliance levels for the agreement, hitting 120 per cent of its reduction target in September. It further reduced output from September to October by a further 180,000 barrels a day, marking an overall production rate of 32.59 million barrels per day.
Now, this agreement may again be extended, beyond 2018, as OPEC nations meet once more ahead of the release of OPEC’s World Oil Outlook on Tuesday.
The joint ministerial committee monitoring the current agreement’s compliance, the JMMC, said a number of avenues are being explored to strengthen the oil market.
“The JMMC will continue to monitor other factors in the oil market and their influence on the ongoing market rebalancing process,” it said.
“All options are left open to ensure that every effort is made to rebalance the market for the benefit of all.”
Analysts are confident this indicates extending the output reduction agreements.
“The market is becoming increasingly confident that production cuts will be extended,” said Ric Spooner, an analyst at CMC Markets in Sydney told Bloomberg.
The market is becoming increasingly confident that production cuts will be extended.
CMC Market analyst Ric Spooner
“Despite fluctuating week-to-week figures on U.S. crude inventories, we’re at a situation now where stockpiles are trending lower.”
Kuwait, Iraq, and Saudi Arabia, which collectively account for more than half of total OPEC output, have already indicated supporting an extension of the reduction agreement, which would prevent another potential oil glut in 2018.