Oil prices have doubled in a year. Here’s why

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It’s a good day for OPEC.

Data released Monday by the oil cartel shows that its members have largely adhered to an agreement to cut production.

This confirmation crowns a remarkable year for OPEC, which was forced to draw up a plan to raise prices after they fell to $ 26 a barrel in February 2016.

The collapse in prices – to levels not seen since 2003 – was caused by months of growing oversupply, slowing demand from China and a move by Western powers to lift Iran’s nuclear sanctions.

Since then, the market has made a stunning turnaround, with crude prices doubling to trade at $ 53.50 a barrel.

Here’s how major oil producers worked together to drive up prices:

OPEC Agreement

OPEC agreed to major production cuts in November, hoping to contain the global oversupply of oil and support prices.

News of the deal immediately sent prices up 9%.

Investors cheered even more after several non-OPEC producers, including Russia, Mexico and Kazakhstan, joined efforts to restrict supply.

Above all, the case is blocked. OPEC’s report released on Monday showed that its members have mostly fulfilled their commitments to cut production. The International Energy Agency agrees: it estimated OPEC compliance for January at 90%.

UAE Energy Minister Suhail Al Mazrouei told CNNMoney on Monday the results were even better than expected.

The production cuts total 1.8 million barrels per day and are expected to last six months.

Related: OPEC Achieves One Of Its ‘Biggest’ Production Cuts

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Optimistic investors

The OPEC deal took months to negotiate, and investors really, really love it. The number of hedge funds and other institutional investors betting on higher prices hit a record high in January, according to OPEC.

Widespread optimism is helping fuel price hikes.

Higher demand

The latest OPEC and IEA data show global demand for oil was higher than expected in 2016, thanks to stronger economic growth, higher vehicle sales and colder-than-expected weather in 2016. last quarter of the year.

Demand is expected to increase further in 2017 to an average of 95.8 million barrels per day, compared to 94.6 million barrels per day in 2016.

The IEA has said that if OPEC sticks to its deal, the global oil glut that has plagued the markets for the past three years will finally disappear in 2017.

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And after?

Despite the breathtaking growth, analysts warn that prices may not rise much more.

This is because higher oil prices are likely to attract US shale producers to the market. The total number of active oil rigs in the United States stood at 591 last week, according to data from Baker Hughes. This is 152 more than a year ago.

U.S. crude inventories rose in January to nearly 200 million barrels above their five-year average, according to the OPEC report.

“This vast increase in inventories is the result of a strong supply response from US shale producers, who were not involved in the OPEC deal and instead used the price hike that caused it. result to increase production, “said Fiona Cincotta, analyst at Index of Cities.

An increased supply could put OPEC under pressure again.

CNNMoney (London) First published on February 13, 2017: 9:13 a.m.ET

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