Oil is closing the year with the biggest annual gain in 7 years
Main page Economics, Oil

The troubled oil market finishes the year on a positive note as it sustains the largest yearly jump since 2009.

In today's early trading, the American oil benchmark West Texas Intermediate (NYMEX: XTI/USD) lost $0.12 and settled at the level of slightly over $53.60 whereas Brent futures (NYMEX: XBR/USD) dropped 19 cents to $56.66, reported Reuters. However, despite failing to reach the "psychologically important" level of $60 per barrel by the end of the year, oil prices still managed to accomplish the biggest annual jump of the last years.

During the volatile 2016, Brent increased by 50% while WTI gained 43%. This is the first result of this kind since 2009, when Brent rose 78% and WTI gained 71% within one year, said Reuters. And, the main reason for such a positive performance is OPEC's "historic" agreement to limit the current oil output volumes in order to lift the oil glut that has been weighing down on the prices for the last two years.

OPEC sends the stock market in euphoria

Even though some experts are worried whether all countries that promised to participate in the production cuts will abide by the agreement, the oil prices still remain lifted since the agreement was reached on November 30. This year's OPEC deal came as a surprise to the market participants as the cartel members repeatedly failed to reach a consensus on a number of internal conflicts that were made public over the last months. This was the first production cut agreement of this kind since the crisis days of 2008, although OPEC tried to limit output volumes several times after that without any success.

“The market has more faith that the participating nations will comply with the assigned production quotas this time because everyone is eager to get the prices up,” an energy analyst Gao Jian told MarketWatch.

Within hours after the agreement was reached last month, both Brent crude and WTI had a boost of more than 10%, what encouraged investors disappointed in the tumbling oil prices. The impressive result of the highest annual gains in years is definitely good news, although it doesn't reflect the actual price levels that accurate, considering that back in 2014 oil was trading above $100 a barrel.

Some analysts say that investors should consider that sustaining the current price level or even boosting oil prices higher up requires healthy demand. The output volumes of U.S. shale producers that are not part of the deal is also an important factor to keep in mind.

“OPEC is aiming for a much-needed lift to the oil price, given the stretched fiscal balance sheets of every producing nation. The question really should be what happens afterwards - how fast is U.S. shale going to come back?” Ed Morse, Citigroup's head of commodities research, told Bloomberg.

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