What is the impact made by the oil cut this time?

The OPEC agreed to cut the production for the first time in the last eight years. The markets were surprised by such news and spiked up once the news was released. The markets had not expected the OPEC to come to any agreement, as the OPEC were very divided and Saudi Arabia previously raised its production to win a higher market share, which had caused friction within the OPEC further.

However, this is only a preliminary agreement and today's Russian production even increased by 400000. It is crucial to see the reaction from Russia to this message. If Russia agrees to cut its production, the later negotiation will be easier; if not, this agreement may be meaningless and end up nowhere closer to a final agreement. Moreover, in November, there will be another meeting about how much each country will agree to cut. This is a much tougher negotiation than having a preliminary agreement of the production cut. All countries in the OPEC want the cuts happening to them to be minimized and the cuts happening to others to be maximized in order to maximize their own market shares. The reality is some countries could gain higher market shares after the agreement and some countries may lose their current market shares; so if no country wants to make any sacrifice, the negotiation cannot end well. Therefore, I think that the difficulty of having the final agreement about the production cut is greater than expected.

If we can get a final agreement of oil production cut, there will be definitely a spike up in the energy sector once the news is released; however, the oil price will not rise back to $80 per barrel, given the green source energy is starting to replace some use of the oil and the economy is not booming and there are many economic uncertainties outstanding and some countries have stored oil as they bought more than needed when the price was low. Therefore, I see the future peak of oil price will be around 60$ and the oil price may gradually fall over time.

To conclude, I think there is a big probability that the agreement may finally fall apart and even if the final agreement about the oil production cut is made, the oil price will rise to its peak soon after the agreement and then gradually fall over time.