OPEC Sizes Up US Rivals

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What's going on?

OPEC, an association of 13 major oil-producing countries, said in a report on Wednesday that it expects its American rivals to pump up production, which could counteract the organizations recent efforts to boost the oil price.

What does this mean?

At the end of last year, OPEC members agreed to reduce their output, with the intent of draining an oversupply of oil on world markets that had pushed down oil prices for nearly three years (think: supply & demand). Wednesdays report took stock of whether OPEC members have kept their word: its been far from perfect, but OPECs overall output has declined moderately.


However, it also warned that American oil producers were likely to take advantage of the rising price of oil and continue to boost their own output which will likely put downward pressure on the overall oil price.

Why should I care?

For the market: The price of oil has increased over recent weeks.

There have been disruptions to supply, most notably in Libya and Nigeria. Also, investors are increasingly expecting OPEC to extend its agreement to limit supply beyond the original expiration date in May, which also appears to be pushing up the price.


The bigger picture: Geopolitical concerns have helped boost the oil price.

Recent events like Americas airstrike on Syria and North Koreas missile testing have given investors the impression that global geopolitical risks have risen. In times like these, safe haven investments like government bonds and gold tend to become more attractive as investors seek out supposedly less risky investments. The oil price also tends to rise when tensions spike in the Middle East, since investors get spooked about the security of the oil supply.

Originally posted as part of the Finimize daily email.

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