Possible oil production cuts spike prices

Late on Thursday afternoon there was an announcement from the Russian oil minister that they will be meeting with OPEC in early February to discuss a 5% cut in oil production. The market has been flooded with over supply, which has caused the oil price to fall as low at $27 a barrel, however, this announcement caused a spike in prices with oil hitting $36 a barrel briefly before trading closed.

The market has been eagerly awaiting the news of a supply cut from OPEC, which will force the price of oil upwards. If it is announced after the meeting that the 5% supply cut will go ahead it is believed that oil will return to prices over $50 a barrel in a matter of days.

This would also have an affect on the price of gas and electricity which is closely related to the oil price in Europe. Businesses are now in a position where they must decide whether to lock in their gas and electricity energy prices while they are low, or take a gamble that the supply cut will not go ahead.

There is a possibility that this supply cut will not go ahead, with Iran now aloud to trade oil on the world market again, both Russia and OPEC member countries do no want to lose market share. The US shale industry would also benefit from a rise in prices, which would have a negative affect on Russia’s and OPEC’s market share.