Yesterday, despite rumors to the contrary, OPEC decided to leave its oil output alone, and this had the initial reaction of sending prices lower in early morning trading. With oil prices falling sharply since last summer, many analysts had been expecting to see a production cut from the group, but instead OPEC announced that it would be leaving its output unchanged, and stated that previous cuts were starting to take effect.
OPEC does not have the best reputation for adhering to its quotas, and perhaps yesterday's move was a way to try to change that perception and bring a little more credibility to the organization's decisions. Last year, it cut production by 4.2 million barrels, and stated that its nations had 79% compliance with its recent cuts. Still not perfect, but better than many had believed.
There are definitely signs that oil has found its bottom. Last month it fell to around $35 a barrel, and since then, has moved up to over $47 a barrel: a 34% jump in right around a month's time.
Several countries were hoping for more cuts in an attempt to get prices to move back up towards the $70 to $75 level. A couple examples were Kuwait and Iran, while Saudi Arabia argued that there was no need for cuts at this time.
Helping oil make a rebound in afternoon trading is the overall market, which is extending last week's gains. While there are still major concerns over the state of the economy, traders are pushing stocks higher following comments from FED Chairman Ben Bernanke that the US should be able to pull itself out of its current recession by the end of the year.
Bernanke stated that recent efforts by the government were enough to keep America from falling into another major depression, and noted that America's major banks are now solvent enough that he is not in fear of any more bank failures. He did go on to state that while he feels the major financial institutions are solvent, that the overall system is still not completely stable, and that is the first step to a total recovery.
As optimism starts to creep its way back into the economy, traders are starting to bet on oil. Oil is currently trading up 2.5% to $47.40, up $1.15 on the day.