Oil had a rough day in the market on Monday, which for many, proved to be a surprising move. After all, OPEC recently announced that it would be extending its production cut. Today, we’ll talk about the extension of the production cut, why oil prices fell on Monday, and what traders should be watching for ahead.
OPEC Announces Extension To Production Cuts
As mentioned above, many expected that oil would have an incredibly strong trading session on Monday, and for good reason. The world’s leading oil cartel, OPEC, announced that it has made the decision to extend the production cuts that were announced late last year. As a result of the extension, OPEC will continue to hold back on the production of 1.2 million barrels of oil per day for 9 additional months in a continued attempt to balance the supply and demand of the commodity.
However, OPEC isn’t the only area where we’re seeing extended production cuts. As we saw shortly after the announcement of the cuts from OPEC in the first place, Russia and other non-OPEC countries made announcements of their own. These non-OPEC countries, figuratively led by Russia, will continue to cut an additional 0.6 million barrels of oil per day. As a result, Russian Energy Minister, Alexander Novak, believes that supply and demand for oil will be balanced by the end of the third quarter of this year.
Why Oil Fell Following This News
At first glance, it seems like oil should have climbed in value following the announcement that oil production cuts would be extended by both OPEC and non-OPEC producers around the world. After all, this will continue to starve supply, helping to balance supply and demand and sending the value of the commodity up? So, what happened on Monday? Well, there are two likely answers and both of them could play a role:
- Holidays – Monday was a very thin trading session around the world, and for good reason. Some of the largest financial regions in the world were on holiday. In fact, holidays in the United States, China, and United Kingdom led to less movement in the market all around, dulling the reaction to the positive news.
- Glut Size – Another thing that we have to consider here is that the size of the oil supply glut is massive. In fact, by OPEC’s own numbers, an extension to the current cut may not work. In fact, nearly double the current cut would be necessary if OPEC’s projections with regard to demand for their oil are correct. This combined with continued gains in production in regions like the United States, Canada, and Brazil, may continue to hold oil down.
What Traders Should Be Watching For Ahead
Moving forward, traders should keep a close eye on oil as the commodity is likely to lead to several incredible opportunities ahead. The good news is that turning these opportunities into profits will likely be as simple as watching the news. Continue to watch the data with regard to supply and demand in the oil sector. Also, pay close attention on Tuesday to how the news outlets respond to the story as their take on the situation will sway investor opinions.