OPEC Agrees To Curtail Production to Cut Record Global Oil Glut

A government report released this week shows that US crude oil supply has had very little effort on the market. Of course, the market has been focused on a recent OPEC deal to slow the supply—a decision which has confused and befuddled many at a time when there is great need to clear out the record global crude supply.

While OPEC brought its first cuts in approximately eight years, US crude oil stockpiles fell, surprisingly, to 884,000 barrels this week. This is significantly different from the expected 636,000 barrel increase.

As such, OPEC reports it will cut production by 1.2 million barrels a day—down to 32.5 million—but Saudi Arabia and Iran could be the exceptions allowed to increase production.

“I think the market is in a wait and see mode,” explains John Kilduff, who is a partner at Again Capital, in New York. “We’re going to have to see these cuts truly get implemented. The production trend has been higher.”
In addition, PVM Oil Associates analyst Tamas Varga comments, “The extent of the (price) move shows no one wants to miss the boat. There must be a general consensus that there will be a cut, whether it’s going to be bullish, I don’t know, but it’s the domino effect.”
Traders are now saying that markets have been shaky and prices could still swing drastically in either direction; it all might depend on how things progress following the ministerial meeting, in Vienna.
For example, analysts at various firms (ANZ, Barclays, and Goldman Sachs, etc) expect oil prices to fall quickly and dramatically—to the low $40s a barrel—depending on whether OPEC succeeds in striking a deal for output reduction.

Accordingly, Energy Aspects Ltd chief oil analyst Amrita Sen comments, “This should be a wake-up call for skeptics who have argued the death of OPEC. The group wants to push inventories down.”

Russia, as you may know, is the largest oil producer outside the bloc and it has said that it is ready to participate in the sanction if OPEC agrees on individual country quotas. It is fortunate, then, that OPEC is expected to open negotiations with non-OPEC producers as early as next week.

Finally, Commerzbank AG analyst Carsten Fritsch notes: “Prices reacted positively, but the devil is in the detail. We have to wait for a country breakdown and whether it’s reliable or not.”

Leave a Reply

Your email address will not be published. Required fields are marked *