Last month OPEC agreed for the first time since 2008 to reduce output by a combined 1.2 million barrels per day (bpd) from Jan. 1, 2017. Russia and other non-OPEC producers also responded with a plan to cut about half as much, a surprise move in last 15 years. Those deals have boosted expectations in the market that a two-year supply overhang will clear soon and pushed Brent around $55.
But there are still some doubts about the willingness of some OPEC members such as Iraq, the second largest producer in OPEC, and Libya to comply with output cuts. Moreover with increase in oil price, a rebound in U.S. shale oil output can be expected. This may derail the planned cuts by others.
Oil price has always remained uncertain, especially since last two years. Brent crude had fallen by over 75% from $115 in June 2014 to $26 a barrel in January 2016. During this period, oil made efforts to recover and even reached near $70 but could not sustain and declined again and again.
The recent developments coupled with uncertainties are likely to keep oil fluctuating between $40 and $70 in near term. And the oil price, in medium term, is unlikely to regain $100, a level seen before June 2014.
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