“Verbal Stimulus” Sends Oil To 1-Year Highs… Now What?
Thanks to the miracle of “verbal stimulus” oil prices have recovered to their highest since July 2015…
As UPI’s Daniel Graeber explains, Crude oil prices erased a pronounced slump in early Monday trading after Russia signaled it would join a production agreement reached last month in Algeria.
Oil prices traded in the red overnight in a carry-over from Friday’s slump. A long rally in oil prices faltered last week amid sluggish growth in the U.S. labor sector. Wage growth was slightly better than inflation over the last year, though the U.S. Labor Department said employment gains were worse than last year.
Crude oil prices are up more $5 per barrel, or around 15 percent, since members of the Organization of Petroleum Exporting Countries agreed in late September to work toward a goal of capping production levels at between 32.5 million and 33 million barrels per day.
Friday’s downturn was supported in part by data from Baker Hughes that show an increase in activity in exploration and production in North America. The increase in North American oil production helped drag oil from $100 per barrel in 2014 to lower than $30 per barrel this year as markets moved in favor of the supply side. Exploration and production activity has yet to translate to real gains in output, however.
Monday’s rally was supported in part by Russia moving in support of the production agreement reached last month in Algeria. Russia is already producing oil at record-setting levels, though the Algerian proposal has given the market confidence that oil prices won’t drop below $30 per barrel again anytime soon.
The price for Brent crude oil moved up 0.3 percent to start the trading day at $52.66 per barrel. West Texas Intermediate, the U.S. benchmark for oil prices, gained 0.2 percent to open at $50.54 per barrel.
Doubts continue to surface about the reality of the Algerian agreement. Writing last week in the midst of one of the most pronounced rallies in crude oil prices for year, Antoine Halff, the director of the global oil markets research program at Columbia University, said the OPEC proposal is nothing more than a letter of intent. Instead, Halff said the market will probably shrink the gap between supply and demand.
“Beyond the pump and ceremony, however, the meeting did not really suggest any credible pathway to sustainably higher prices,” he wrote.
Similar efforts at a so-called freeze collapse earlier this year along multilateral lines. While struggling members of the OPEC support any action that would drive prices higher, others have said it’s up to non-OPEC members to make the proposal stick.
But what happens next?
So higher oil prices are unequivocally good now?
Bear in mind that Oil looks around 30% expensive to the US Dollar…
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