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OPEC Extended the Production Reduction Agreement to Boost Oil Prices

OPEC (Organization of Petroleum Exporting Countries) held a ministerial conference this week. The organization reached an agreement with non-OPEC countries to extend the production reduction agreement for another nine months. Analysts say that oil producers will continue to work together to reduce production, which will encourage crude oil prices to keep rising. However, the US oil producers who are not involved in the agreement are also increasing oil production, which will have an impact on the situation.

At the end of 2016, OPEC and the non-OPEC oil producing countries such as Russia and other countries jointly reached the production reduction agreement. According to the agreement, from January of this year, OPEC and non-OPEC oil producers will reduce about 180 million barrels of crude oil for six months to alleviate the market oversupply situation. In May, OPEC and non-OPEC producers decided to extend the production reduction agreement for another nine months. After nearly a year's efforts, the agreement has received some achievements. The situation of oversupply has been alleviated with international oil prices recovered and the crude oil inventories significantly decreased.

At the meeting, OPEC and Russia and other non-OPEC oil producers agreed that the production reduction agreement would help to restore supply-demand relationship in the crude oil market, and also help oil prices return to normal level. In the statement released after the meeting, OPEC claimed that OPEC and non-OPEC oil producers would consider whether to take further adjustments in June 2018 based on market conditions and the progress made in balancing the crude oil market.

The Wall Street stated that the agreement reached by OPEC and major oil producing countries could stimulate the increase of US shale oil production. According to the US energy information agency, the US shale oil production will reach up to about 610 million barrels per day in November this year. In the latest annual crude oil market outlook report, OPEC predicted that in 2025, shale oil output of the United States will reach about 825 million barrels per day, which increases nearly 50% compared with 2016.

By the last trading day of the week, the price of the light crude oil in the New York Mercantile Exchange rose by $0.96, with each barrel charging $58.36 in January 2018, increasing by 1.7%. The price of London Brent crude oil in February 2018 rose by $1.10, up at $63.73 a barrel, and the increase rate is 1.8%.

In addition, according to the survey of 14 investment banks, conducted by the "Wall Street journal" at the end of November, the price of crude oil in Beihai international benchmark Brent will reach about $56 a barrel next year, $2 higher compared with October this year. The investment banks expect the average price of light crude oil to increase to $53 a barrel in 2018, $2 higher than the previous survey.

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