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Here's Why Oil Prices Are Soaring Today

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Oil prices soared above $54 a barrel for the first time in nearly a year and a half Monday morning as several non-OPEC nations, including Russia, agreed to join the cartel in cutting their production next month.

 

By midday, January WTI Crude was up nearly 3.4% to $53.24 and February Brent Crude was up nearly 3.2% to $56.06.

New Nations Join OPEC Cut

Over the weekend, Russia, Mexico, Kazakhstan, Oman, and several other non-OPEC oil producing countries announced that they would aim to cut their output by about 550,000 barrels a day (b/d) starting in January.

(Listen Now: Oil Prices Soaring As OPEC Finally Reaches Deal To Cut Production)

Just a few weeks ago, OPEC agreed to cut production by nearly 1.2 million b/d, signaling an end to the “pump-at-will” policy that sent global oil prices spiraling downward. Saudi Arabia, which has served as the de facto leader of OPEC, helped ensure the deal by picking up the largest portion of the cut, while regional rival Iran will simply freeze production at current levels.

In fact, oil prices got a bit of an extra boost on Monday as reports suggested that Saudi Arabia would be willing to cut its production even further than it previously promised.

Other Factors

For oil prices to remain above $50 a barrel—or push even higher—it is important that all of the countries who have agreed to cut production actually stick to their words. As things stand today, no cuts have been made yet and production is still on the rise. Come January, we will find out whether there will be any detractors.

Another thing to consider is that production cuts across the globe may inspire U.S. producers to raise their output. OPEC’s “pump-at-will” policy was seen by many as an attempt to drown American shale producers out of the market, but domestic rig counts have been growing steadily over the past few months.

The rise of alternative oil procuring techniques, such as fracking, as made the United States a significant player in the global oil market, and U.S. producers will now have even more power to impact global prices.

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