Oil price leads the financial news today as its price heavily increases. The reason of the change is that members of the Organisation of the Petroleum Exporting Countries agreed on their meeting in Vienna to trim their output by 1.2m barrels per day from 1 January, 2017. This is the first case for such an agreement since 2008. The 14-nation cartel of oil producers that is responsible for almost half of the global output, intends to stabilise world market through this deal. OPEC was trying to reach production-cutting throughout 2016, but previous meetings have failed.
Production cut is a relevant change in Saudi Arabia’s policy, as the country’s goal has been to keep production levels high in order to ensure low oil price. The aim was to drive higher-priced US shale producers out of business. For this reason, there was an oversupply on the oil market for almost two years. Saudi Arabia agreed to the highest reduction in output this time, of under 500,000 bpd.
Non-OPEC producers are supposed to lower production by 600,000m barrels per day. The key non-OPEC player Russia is expected to join with a 300,000 bpd cut. Russia’s oil minister, Alexander Novak, welcomed the announcement but added that his country can cut production gradually due to technical issues. Non-OPEC countries will hold their meeting in Moscow on 9 December, 2016.
Brent crude was trading at just over $50 a barrel, with an increase of almost $4 on the day, so the price of the commodity rose by 8% after the agreement was concluded.
The price of crude oil reached $105 per barrel in July 2014, but it plunged in the second half of that year and dropped by almost 50%, to $54.45 a barrel by January 2015. Then it gained strength and traded at $62 in April 2015. The increasing trend did not last long, oil price fell in July and August 2015, below $45 and dropped to $33 in January 2016. Oil prices crashed after the world started pumping out far more crude than the global economy needed.
How can you make use of this in binary options trading
Crude oil has always been one of the favorite assets of binary options traders. Its price showed plenty of volatility, so it provided a lot of trading opportunities.
With this announcement and the planned meeting of non-OPEC countries on 9 December, 2016, we can see volatility again. It is an excellent time for trading binary options on oil.
As always, you need to analyze the market carefully this time too. The price of crude oil is likely to stay closer to $50 than $40, but if there would be a sustained rise in oil prices, the US shale sector would increase its production, which would drive prices back down again.
If you want to widen the range of the assets you trade, you can also include binary options on stocks of oil producers, as their prices follow oil prices.