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OPEC Members Has Signed an Agreement About Crude Oil Production Cut. What Shall Financial Market Expect?

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OPEC Members Has Signed an Agreement About Crude Oil Production Cut. What Shall Financial Market Expect?

OPEC Members Has Signed an Agreement About Crude Oil Production Cut. What Shall Financial Market Expect?
December 05
13:00 2016

OPEC members finally have come to an agreement. On 30th November the Agreement about the crude oil production cut was signed. How will this fact influence the oil prices and what financial market shall expect? There are some options, you can read about them on our portal.


What is OPEC

OPEC is an interstate organization, created by the oil producing countries in order to provide the control over the oil production. The OPEC members are 14 countries: Saudi Arabia, Iran, Iraq, Venezuela, Kuwait, Libya, Qatar, the United Arab Emirates, Angola, Algeria, Indonesia, Nigeria and Ecuador.

Why do they need to cut the oil production?

The prices for crude oil have been falling for quite a while, that is why, the question about the oil production cut has been in sight for quite a long time. OPEC countries have already been trying to agree during some months, but Iraq and Venezuela opposed the offer to cut the oil production.

And that is not surprising, as both countries are not experiencing their best time, while oil production is a reliable source of income.

Though, whether it is profitable to sell oil for very low prices? A good question. Even the government of these two countries had to accept that.

The agreement was signed on 30th November

Here it goes! OPEC countries has signed an agreement. That happened for the first time during many years, even though with reservations. One cannot disagree that this is a serious achievement – both from political as well as economic point of view as those countries are too different – economically, politically, culturally, socially.

The production of crude oil will be cut: not more than 1,2 mln barrels per day for each country. Iraq is an exception, as it has to renew its economy, hence, its limit is 3,9 mln barrels per day.

The Agreement shall enter in force on 1st January 2017. For now, it will be valid during half a year, but prolongation is possible in the future, depending on its results.

Non-members – what about them?

But what is the situation with the countries that are not OPEC members? In this case, OPEC believes that they will support the initiative and limit the oil production to 600 000 barrels per day.


Russia is a separate question, as usual. Its representatives were not even invited to the preliminary OPEC meeting that took place on 28th November. There is nothing to do here for Russia that is not an OPEC member.

But the Russian government understands the advantages. To sell less but for a more expensive price – that is a wonderful option for the Russian Federation. As a result, this super-power and one of crude oil producers as well excused such ignorance and even agreed to cut the oil production to 300 000 barrels per day.

What does it mean for the market?

The market showed its attitude immediately. The OPEC representatives did not even manage to start negotiations, when the prices for crude oil surged.

Crude oil Brent grew in price till 50,22 US dollars per barrel. This equals to 8,28% of growth and looks impressive. Crude oil WTI grew in price till 48,70 US dollars per barrel. The growth rate is 7,67%.

What shall investors expect?

The price may be growing till the level 60 US dollars per barrel, further the market stabilization is expected. That will happen due to several factors. For example, the mining volumes of other supplemental sources may increase in the USA, for example.

For the USA it is a great opportunity to earn

One of the most important factors is actually the country itself, the USA. This country produces oil as well. And, well, the USA haven’t expressed their agreement to join the oil production cut. Maybe, the government of the country can use it to the advantage of the USA? Such opportunity comes very rarely.

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  1. Davies
    Davies December 05, 17:22

    As far as it’s understandable, Iran is not satisfied with its quota.

    Reply to this comment
  2. Smith
    Smith December 05, 20:43

    Welcome news after the notorious meeting!
    Russia expressed readiness to reduce the oil production!

    Reply to this comment
  3. Joshua Jones
    Joshua Jones December 05, 21:40

    The agreement can be considered convincing if it contains a quota for all 14 members of OPEC

    Reply to this comment

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