Friday, oil prices rose more than 6% on the New York Mercantile, trading above $46 per barrel, as investors and energy insiders saw hope today that the spiraling price of crude would soon start working its way up again.
Analysts point to the realization of OPEC's drastic cuts in production, announced at the December 2008 meeting. In an effort to buoy prices, the 12 member countries agreed to reduce production by 2.2 million, starting in January 2009. According to a report from the state-run newspaper, Saudi Arabia has already resigned to cut its production by 300,000 bopd.
"With the recent gains in price and the flattening out of the forward curve, we may be seeing the first evidence that the OPEC production cuts are having an impact on the crude oil market," Citi Futures Prospective energy analyst Tim Evans told Bloomberg. "If so, this could be the start of an ongoing price recovery."
Despite the recent EIA report that US crude stocks were at the highest they've been since August 2007, the price of later-dated futures contracts stayed higher than the current contract, with investors buying barrels now to sell them in the future at a greater price, illustrating growing confidence in the oil market.
"When the market shrugs off inventory data like that, it often can be a beginning of a signal that things have turned," said Gene McGillian, analyst at TFS Energy, to the Wall Street Journal. "We need to see more of a confirmation that the market can withstand the negative signals that we saw today before we're really convinced."
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