Opec cuts, but can it deliver?
- Saudi Arabia calls off pump-and-dump strategy after agreeing oil cut deal
- Deal is first Opec cut in production since 2008
- Details on deal need to be sorted out in run up to November 30 Opec meeting
- Nigeria, Libya and Iran expected to gain exemptions
- Impact unlikely to be felt until January 2017 at the earliest
- Forecast on short-to-mid-term for oil still to be capped in low $50s/barrel
The devil in the detail will need to be sorted out by the November 30 Opec meeting
and that will see feverish negotiations over the next two months. Photo: iStock
By Ole Hansen
The pump-and-dump strategy introduced by Saudi Arabia in November 2014 was called off Wednesday when Opec members meeting in Algiers decided to cut production by up to 700,000 barrels/day with the allocation expected to be agreed at the next official Opec meeting on November 30.
This is the first production cut in eight years has been taken in order to support the rebalancing process which had almost come to a halt as several Opec members and Russia continued to ramp up production in recent months.
The decision was taken to establish a floor under the market with the upside limited until the global overhang of supply start to show signs of being reduced.
1) Who is going to cut given some members including Nigeria, Libya and not least Iran are expected to be excluded ?
Brent crude spiked 6% overnight but is still shy of the August
peak after the Saudis verbally intervened on the state of the market
Opec and the oil price have both been boosted by the fact that an increasingly dysfunctional cartel once again has shown the ability to agree on something.
US and other high cost producers will also have cheered this decision considering the potential it provides for stabilizing and eventually boosting production.