Oil prices have doubled in a year.  This is why

It’s a good day for OPEC.

Data released Monday by the oil cartel shows its members have largely complied with an agreement to cut production.

The confirmation caps a remarkable year for OPEC, which was forced to come up with a plan to boost prices after they fell to $26 a barrel in February 2016.

The price collapse, to levels not seen since 2003, was caused by months of growing oversupply, slowing demand from China and the decision by Western powers to lift nuclear sanctions on Iran.

Since then, the market has undergone a surprising turnaround, with crude oil prices doubling to trade at $53.50 per barrel.

Here’s how major oil producers worked together to drive up prices:

OPEC agreement

OPEC agreed to major production cuts in November, hoping to rein in global oil oversupply and support prices.

News of the deal immediately boosted prices by 9%.

Investors cheered further after several non-OPEC producers, including Russia, Mexico and Kazakhstan, joined the effort to restrict supply.

The most important thing is that the agreement has been maintained. The OPEC report released Monday showed its members have, for the most part, kept their promises to cut production. The International Energy Agency agrees: It estimated OPEC compliance for January at 90%.

UAE Energy Minister Suhail Al Mazrouei told CNNMoney on Monday that the results were even better than he expected.

The production cuts total 1.8 million barrels per day and are scheduled to last six months.

Related: OPEC has carried out one of its “deepest” production cuts

Optimistic investors

The OPEC deal took months to negotiate and investors really like it. According to OPEC, the number of hedge funds and other institutional investors betting on higher prices hit a record high in January.

Widespread optimism is helping to drive price increases.

Greater demand

The latest data from OPEC and the IEA show that global oil demand was higher than expected in 2016, thanks to stronger economic growth, higher vehicle sales and colder-than-expected weather in the final quarter of the year. .

Demand is expected to grow further in 2017 to an average of 95.8 million barrels per day, compared to 94.6 million barrels per day in 2016.

The IEA said that if OPEC sticks to its agreement, the global oil glut that has plagued markets for three years will finally disappear in 2017.

Saudi Oil Minister: “I’m not losing sleep over shale”

Whats Next?

Despite the surprising growth, analysts warn that prices may not rise much further.

This is because higher oil prices are likely to attract US shale producers back to the market. The total number of active oil rigs in the United States was 591 last week, according to data from Baker Hughes. That’s 152 more than a year ago.

U.S. crude stockpiles rose in January to nearly 200 million barrels above their five-year average, according to the OPEC report.

“This large increase in inventories is the result of a strong supply response by US shale producers, who did not participate in the OPEC deal and have instead been using the resulting price rally to increase supply.” production,” said Fiona Cincotta, City Index analyst.

Higher supply could put OPEC under pressure again.

CNNMoney (London) First published February 13, 2017: 9:13 am ET