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OPEC May Not Deliver Promised Cuts in Oil Production

OPEC and Russia may not deliver cuts in oil production. OPEC countries have long history of not following the limits on oil production. This time a panel of representatives of the member countries was appointed in order to oversee the production cuts (read full article):

The dealmakers have created a panel to verify the cuts, a five-nation group with both OPEC and non-OPEC members that will meet Jan. 22 in Vienna. While some see this as an impressive indication of intent in the midst of a two-year price rout, others worry the group is only now trying to establish how compliance will be assessed.

“Is this a committee in name only or is it actually going to have a strong voice?” said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University in New York. Can it “publicly name and shame countries that overproduce? It’s really going to depend on how they actually set it up.”

“OPEC is going to yet again over-promise and under-deliver,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, in a Bloomberg television interview. “We are going to get cheating from OPEC; we’re going to get false information.” …

 

Oil production by OPEC
Oil production by OPEC

 

Some analysts, though, say OPEC has little choice going forward, given the economic damage incurred on the group’s members during the price rout …

In any case, oil traders may reserve judgment until there’s data from oil-importing nations showing that their inventories have declined, proving that the cuts are having a tangible effect, said Mike Rothman, president of Cornerstone Analytics…

Kuwait has recommended that countries match production cuts with a corresponding drop in exports. This would prevent members from topping up exports with oil from storage …

The figures may not be useful, as exports will for some time still reflect production levels from before the agreement.

 

Each oil producer gains from reduction of global oil production due to oil price inflation, but at the same time not interested in reduction of his own exports at higher prices. This is a great incentive for cheating.

The price of oil rose about 20% when the agreement to cut production was reached, but recently it started falling at perspective of the increase in oil production in the US.

 

See also:

OPEC Seeks to Quiet Doubts on Supply Cuts as Oil Rally Falters