Oil prices extends higher Monday morning in anticipation of tighter crude supply going into 2017 following the decision by OPEC and other producers to cut output to prop up prices.
OPEC and other producers led by Russia have announced cutbacks of almost 1.8 million barrels per day in oil production from January 2017 in an effort to bolster prices to reduce rampant global oversupply which has seen output outstrip consumption for over two years.
With investors now expecting a relatively high level of compliance with the production cut agreements, prices should be well supported heading into next year’s trading. A slowdown in US Dollar rally last few days also helped improve investor sentiment. Major swings in the US Dollar could affect oil demand as they influence fuel prices for any country using its own currency domestically.
On the flip-side, some market analysts remain skeptical that the OPEC-led cuts will reduce oil supply by as much as some are hoping. They believe it is unlikely that OPEC will implement the cuts in full, while non-OPEC production will likely increase.
Furthermore, Chinese imports could fall back if prices remain high as much of the surge in oil imports has been driven by a desire to fill the country’s strategic reserves.
Going into trading this morning, Brent crude futures were trading at $55.41 per barrel (up 20 cents, or 0.36 percent), WTi crude futures were trading at $52.12 per barrel (up 22 cents, or 0.42 percent) from Friday’s close.