According to the news report by CNBC, the price of oil shot up on Friday morning thanks to indications that OPEC and its allies were nearing a deal to boost the oil market by cutting down on production.
The international benchmark for crude oil, Brent Crude went up by 2.6% or $2.78 to trade at $62.84 per barrel during morning trading today. The American benchmark for crude oil prices, the West Texas Intermediate also saw an increase of 4.2% or $2.17, to trade at $53.66 to the barrel.
The Organization of the Petroleum Exporting Countries, or OPEC, is holding discussions with its allied oil producing countries, including Russia in Vienna, Austria at its headquarters. And according to reports from both Reuters as well as Dow Jones, the cartel and its allies are looking at reducing oil production by 1.2 million barrels to 1.3 million barrels a day.
However, after the initial reports, other sources released conflicting information about the proceedings at Vienna.
Reuters reported that OPEC countries were looking at cutting down oil production by about 800,000 barrels a day, and were asking their allies to cut down oil production by about 400,000 barrels per day.
However, Dow Jones reported that OPEC was looking at a cut of 750,000 to 800,000 barrels a day, and was asking its allies to contribute to the overall goal of 1.3 million barrels per day.
Yesterday, the talks between OPEC and its allies had reached an impasse due to the fact that Saudi Arabia refused to let Iran get an exemption. Iran had requested for an exemption from oil production cuts due to the sanctions that had been imposed on the country by President Donald Trump of the US. The country stated that these sanctions had already significantly cut down on their oil exports.
Iran, however, is reported to have accepted a deal by Friday afternoon. The group is still discussing how the official statement should be worded.
According to the energy research company Energy Aspects, the wording of the deal is critical since the oil market is extremely fragile at this moment. The company stated that a vague statement giving a general intention to ensure that market is not oversupplied would actually be damaging and could lead to a further drop in oil prices.
The sensitivity of the oil market was felt the day before, when oil prices dropped sharply after the cartel and its allies were unable to reach a consensus on the terms of crude oil production cuts. This meeting is taking place at a time when oil prices are the lowest they have been since the 2008 financial crisis.
Thankfully, the negotiations showed progress on a key front today, with Russia (which had held back on giving a commitment the previous day) agreeing to reduce oil production by 200,000 barrels per day. On Thursday, the cartel had delayed its decision on how much of a production cut it would commit to until Russia gave a specific number.
OPEC had begun partnering with Russia and its other allies in January 2017 to reduce oil production to stabilize falling oil prices due to a massive oil glut in the international markets.
However, in June this year, OPEC and its allies removed the cap on oil production and increased oil output after more oil supplies had been taken out of the market than they had intended. This occurred because of the massive political instability in Venezuela which led to a plunge in oil production in the country and thanks to oil supply disruptions in Libya due to a damaged pipeline as well as political instability.