Crude Cutbacks: OPEC Reduces Oil Production


Saudi Arabia has declared a cut in oil production by 1 million barrels per day as a strategy to bolster oil prices. This decision was revealed following a tense Opec+ assembly of oil producers in Vienna this past Sunday. 

The decision was made by Saudi Arabia’s energy minister and Opec’s leader, Prince Abdulaziz bin Salman. The strategy involves a few weaker African members facing reduced quotas starting next year. Furthermore, Russia, the world’s second-largest oil exporter, may also experience a reduction in its production targets, although this is currently under review. In contrast, the UAE has been granted permission to augment its production. 

Despite several endeavours by producers to constrict supplies, oil prices have dipped over the last ten months. There was a sudden cut announced by the kingdom and other members in April, which caused a brief surge towards $90 a barrel. However, the prices eventually dipped again, hitting almost $70 a barrel at one-point last week. 

However, oil prices experienced a surge on Monday morning. The international benchmark Brent crude increased by 1.1 per cent to trade at $76.98 per barrel. In the meantime, the US equivalent, West Texas Intermediate (WTI), saw a rise of 1.3 per cent, trading at $72.66. At one point, WTI surged as much as 4.6 per cent while Brent peaked 3.4 per cent higher.

Buy a call spread

Bullish Outlook
buy 1 Sep Crude Oil 80 call at $1.90
sell 1 Sep Crude Oil 90 call at $0.45

Trade Idea

Buy a call spread

If you think the market will rise on the back of Opec’s announcement today, but that it is unlikely to go higher than $90/BBL

Cost of trade $1,900 – $450 = $1,450*

(*$1000 per $ $1.90 x 1000 $1,900)

(*$1.20x 1000 $1,200)

Written By

Important information: Derivative products are considerably higher risk and more complex than more conventional investments, come with a high risk of losing money rapidly due to leverage and are not, therefore, suitable for everyone. Our website offers information about trading in derivative products, but not personal advice. If you’re not sure whether trading in derivative products is right for you, you should contact an independent financial adviser. For more information, please read our Important Derivative Product Trading Notes.

Important Notice - Show