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Tuesday 30 May 2017

The three questions about oil, following OPEC's decision

OPEC may extend its production constraints for another nine months, but after the initial party, the questions faced by investors are as follows:
Will the strong relations between Russia and Saudi Arabia be maintained after the agreement? Will the members of the cartel succeed in resisting the temptation of larger production, in the midst of a boom in extraction by US state-owned manufacturers? And perhaps the most important question - what is the long-term policy of OPEC countries?
The last question is very important because we saw how OPEC's policy can be radically turned to 180-degree only within a few years.
The war on US state-owned producers, and Saudi Arabia, seriously reflected on the producers themselves, and they were the first to "flicker", not to resist the low price of oil they themselves attempted to initiate. And the goal was clear - to bring US producers to bankruptcy.
What worries the experts is that there are no clear signals about the exit strategy and what the parties' policy will be after.
These concerns, among market participants, materialized in the price of oil. Brent lost 5 percent, to $51.24 a barrel after the decision, neutralizing a major part of the growth after representatives of Russia and Saudi Arabia publicly announced they would support production cuts last week.
Or have we witnessed the materialization of the market rule "buy on rumors, sell on news".

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