Oil prices spike sharply after OPEC fails to deliver

An oil pumpjack operates in the drive-thru area of a McDonald's in Bradford Pennsylvania

An oil pumpjack operates in the drive-thru area of a McDonald's in Bradford Pennsylvania

The crude oil swap deal-which was initially planned to begin in April-is seen by some as a major influence push by Iran in Iraq, after Tehran helped Baghdad quash an emerging independence movement in Kurdistan that culminated in an independence referendum, the results of which Baghdad refused to recognize.

The contentious meeting took place under the shadow of vituperation from U.S. President Donald Trump, who anxious that high oil and gasoline prices would be politically painful ahead of midterm elections later this year. The effective increase in supply, due to crunch in other nations like Venezuela, could be 770,000 bpd, which is less than half the amount OPEC reduced in supply in 2017.

Friday's decision means OPEC will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day.

By not setting individual targets, the OPEC deal appeared to give Saudi Arabia the leeway to produce more than its previous OPEC quota and fill the gap left by those such as Venezuela who can not pump enough to meet their official allocation. Alongside this, the increase in output will likely be easily absorbed by the market and is not going to tip the oil balance into negative territory, which could allow for oil prices to grind higher. The increase in production will be borne largely by Saudi and Russian Federation.

OPEC and partners including Russian Federation and Oman have since a year ago cut output by 1.8 million bpd. Venezuela will raise its production when it can.

Saudi Energy Minister Khalid Al-Falih told reporters in Vienna that an agreement had been reached for a "nominal" production increase of one million barrels per day (bpd). Apart from the OPEC meet market will also take cues from movement of dollar index, recent strength in dollar index from 92/93 to 95 has pressured oil prices and now dollar index is approaching a resistance area of 95.50/96 and has turned lower from there towards 94.50 which could provide support to oil prices and we could expect a pullback rally. "OPEC is set to hold the next biannual meeting on 3 December", wrote analysts at Danske Bank.

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