After the much awaited OPEC Oil Production Freeze talks last week where Iran was announced to be a special exception to countries who will place a cut in their oil production led the price of crude oil to rally to a three-month high.
The decision was made during an informal OPEC talk and an International Energy Forum held in Algiers despite a weak prospect prior to the event. Another talk regarding the output would be made in a formal OPEC meeting this coming November in Vienna.
Following a jump of $51 per barrel on October 3, analysts and investors alike have now weighed out the OPEC decision behind a series of crisis with the price of crude oil. This has led the price of the stock to drop to $50.49 while the WTI rose to $48.54 to an increase of 31 cents.
Sudden Drop in Price of Oil
After the reports that Iran and Libra have resumed with increasing their oil production, the fourth biggest OPEC member in the export of crude oil will now be signing a new petroleum contract that would allow them to raise their crude production to four million barrels per day.
Although doubt rose from the deal which will lead to an increased production despite the need to place a production cut, the stock jumped to more than $50 per barrel on Monday before showing a decline during mid-trading Tuesday.
The U.S. West Texas Intermediate (WTI) crude dropped by 0.9% to 42 cents with a $43.39 price per barrel. The Benchmark Brent crude oil futures also traded at $50.49 per barrel down by 0.8% or 40 cents.
Along with Iran’s approved production to maximum levels or four million barrels a day, Libya was also announced to be an exception to the countries which would be following the imposed production freeze or cut. From an initial production of 290,000 barrels per day, there would be now an expected output of half a million barrels per day.
The chart above shows a rally of four consecutive trading sessions following a sudden drop Tuesday as Iran and Libya announced that their respective countries would be increasing their production away from the OPEC output that a production cut would be imposed.
The announcement which led for the price to suddenly rally following a decline a week ago did not keep the Iran exception a secret as it was announced along with the much-awaited news.
Should OPEC choose to stick with their agreement until the end of 2016, there should be a decrease in the oversupply due to the production cuts. Russia who is a non-OPEC member has also signified that they would also be imposing a production freeze but is still awaiting a final announcement.
Despite the sudden drop, the current price level is still at the 48.60 level and is still viable for the analyst forecast of a $60-price. The OPEC output regarding their insights on the production cut and specific numbers are still unclear until their formal meeting in Vienna this coming November 30th.