Price of Oil Rises, But Investors May be Disappointed

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The price of oil rose on Jan. 29, 2016 because of rumors that Russia and OPEC might cut production. However, some analysts are not convinced that these rumors are true. (

The price of oil rose on Jan. 29, 2016 to close at $33.62 a barrel as a result of speculation that OPEC and Russia have tentatively reached an agreement to cut production and reduce the current oil glut. Today’s closing price was a three week high, following two years during which the price of oil has fallen steadily.

Despite the encouraging rumors, some countries, such as Iran and Iraq, have said that they hope to increase rather than reduce their production.  Consequently, the rising price of oil may be premature. Investors will be disappointed if the oil producing countries are unable to reach an agreement to decrease the oil glut.

As of the afternoon of Jan. 29, Moscow announced that minister Sergei Lavrov, would visit the UAE and Oman to discuss oil policy.  In addition, Venezuela, which has been begging OPEC for several weeks to have an emergency meeting to cut production, announced it is sending its oil minister to Russia on a tour beginning on Saturday, Jan. 30, of both non-OPEC and OPEC countries.

However, Iran and Iraq both want to increase their oil production, which is likely to make it impossible to get the other countries to agree to cut their production.

Nonetheless, some analysts are encouraged that Russia and OPEC countries are having these discussions.  They also believe that global demand will increase again, which would also reduce the current oil glut.

Currently, however, both the rumors about an agreements between Russia and OPEC, and the hope that global demand will reduce the oil glut are pure speculation.  No definite changes have happened yet in either of these arenas.

One thing that could reduce the oversupply of oil is the falling rate of production in the U.S., which dropped in both October and November.  In addition, U.S. shale oil producers, who have added to the glut, have cut their capital spending forecasts for 2016.  In addition, the U.S. oil drilling rig count fell for the sixth straight week.  Future cuts are also possible.

Phil Flynn, an analyst at Price Futures Group in Chicago, told Reuters, “With more energy companies announcing cuts and OPEC contemplating a cut, it looks like oil is forming a bottom.”

This would be welcome news to energy companies, which have seen their profits slashed because of the dramatic drop in oil prices over the past few months.

Some analysts believe that oil hit its bottom when it dropped below $30 a barrel and it could climb back up to $40.  However, other analysts, such as John Kilduff, a partner at Again Capital LLC in New York, believe that it is too soon for this much confidence and they are waiting to see if foreign producers are able to reach an agreement on cutting their production.

Fortune Magazine also reports that they do not expect us to see cuts in production any time soon.


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