For the first time since June, speculators engaged in oil trading are mostly bullish. This may have been partly due to discussions of four OPEC countries last month deciding to cap on production at January levels. The cap could be further strengthened next month when both OPEC and non-OPEC oil producers will meet to reach an agreement. Though Iran continues to remain in strong position, there is a hope that an agreement is in the cards for limiting oil production globally.
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Futures Surge 11%
After Qatar’s Oil Minister indicated on March 16 about next month’s meeting, futures jumped 11% in just two days of trading. Interestingly, output in the United States dipped to a 16-month low due to a record drop in drilling activities that started to take hold. Also, following the Federal Reserve’s slashing of its outlook for interest rate hikes, global oil futures witnessed an accelerated rally.
The positive trend could be seen when hedge funds and speculators boosted their position in West Texas Intermediate futures by 17% in the week that closed March 15. Similarly, WTI slackened 40 basis points to $36.34 per barrel on the NYMEX in the same period and finished the week on Friday at $39.44.
Oil Climbs Over 50%
Since mid-February following the initial proposal of the four countries, oil has witnessed more than a 50% uptick. Their proposal envisaged a reduction in the global surplus to enable the oil price to get stabilized as excess demand dragged down the prices to the weakest level in nearly 13 years. Next month’s meeting could seek a commitment from oil producing nations on a further production freeze.
Capital LLC Partner, John Kilduff, has said that the scheduled meeting would usher in a fresh phase of cooperation between OPEC and other oil producing nations to stabilize the supply position. He said that if the meeting failed to produce the expected results, the market would turn back the other way.