InvestorQ : What is the reason that the price of crude oil has moved above the $53/bbl mark on Tuesday 05 January 2021?
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What is the reason that the price of crude oil has moved above the $53/bbl mark on Tuesday 05 January 2021?

Answer
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4 months ago
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Brent has been on a roll for the past 3 months ever since it became clear that Biden was taking over as the next president. That is because, Biden has been a strong opponent of fracking in Federal lands and that is likely to reduce the US supply of shale substantially and push up prices. Hence crude prices had already started moving up in anticipation.

Crude had rallied from $36/bbl to $48/bbl in the last 2 months of the year. However, in January the price of crude has rallied further above $53/bbl. Brent crude prices decisively and convincingly crossed the $53/bbl mark on Tuesday after the largest oil producer in the OPEC, Saudi Arabia, agreed to more cuts in output to keep the OPEC Plus deal in place.

There is an interesting background. Russia, Kazakhstan and Mexico are not part of the OPEC but they are part of the OPEC Plus deal on oil supply. Now, both Russia and Kazakhstan want to increase oil output by 500,000 bpd and are not keen on status quo. However, fearing that it would depress prices, Saudi Arabia has agreed to take a larger cut in production.

This is expected to compensate for the losses to Russia and the other countries in the alliance. But the Saudi Oil Minister, Abdul Aziz, is far from impressed by this idea. He has sounded a note of warning that the resurgence of COVID in EU may anyways depress demand from these economies and pull down prices; negating the Saudi initiative.

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