Major oil producers announced a deal Tuesday that could halt the bloating of global oil supplies, potentially boosting prices. Saudi Arabia and Russia, the world’s two largest exporters, along with Qatar and Venezuela, two OPEC members, agreed to cap oil production at current levels.
News of the deal caused a sharp 8.5 percent rally in crude oil, but the market eventually faded to unchanged on the week as market watchers poked holes in the plan.
The four nations, which account for about a third of global production, are already pumping near a record pace. Even with an implemented plan, the world would still have an oversupply of crude oil of about 1.5 million barrels per day (bpd).
Furthermore, the agreement is contingent on other major nations freezing production levels. Iran and Iraq have both signaled that they plan to continue raising production in the coming years, adding as much as 5.5 million bpd to the global supply, essentially rendering the agreement futile.
Long-term, this agreement is a step toward cutting into the global oil glut, but, ultimately, producers will need to cut back on production to bring the market back to equilibrium, a step that seemingly no one is willing to take. Until they do, oil prices are likely to remain under pressure, trading Friday for $29.50 per barrel.
Housing market builds solid foundation
Despite the economists’ concerns about a slowing global economy, the U.S. housing market remains a bright spot. Building permits and housing starts, two indicators of housing market strength, are near a prerecession high, which has helped hoist prices for commodities used in construction, especially lumber.
After a slew of housing data was released this week, lumber prices shot to the highest price of the year, topping $266 per thousand board feet on Friday.
Prices are still down sharply from their recent high over $400 in 2013, which was hit as China was rapidly expanding construction. Without stronger international demand, the lumber market could remain relatively cheap, which would be a welcome break for homebuilders in the U.S.
Walt and Alex Breitinger are commodity futures brokers in Silver Lake, Kansas. They can be reached at 800-411-3888 or www.paragoninvestments.com.