OPEC and allied non-OPEC producers have agreed to extend oil production cuts at current levels for nine more months through March 2018. Oil markets, which had been expecting exactly this result for days now, fell on disappointment that OPEC didn’t go further and increase the size of production cuts.
This morning OPEC reported that in January members had delivered 93% of the production cuts they had promised last year. Last week, however, the International Energy Agency had forecast 90% compliance. So with nothing new in this morning’s news, oil prices have retreated on fears that U.S. production from oil shale geologies is on the rise.
On Sunday January 22 OPEC and non-OPEC producers including Russia announced what looks like a credible mechanism for monitoring the production cuts that these nations agreed in December. And Saudi Arabia’s oil minister said that with better than expected compliance so far, there might not be any need to extend the production cuts beyond their May expiration. That would leave about two-thirds of the current supply glut in place.
Definitely a bad weekend for OPEC. On Friday the Organization of Petroleum Exporting Countries failed to reach internal agreement on which OPEC producers would cut production. On Saturday, OPEC concluded talks with non-OPEC members including Brazil and Russia without an agreement on a joint commitment to limit production
Oil rallied big time today on news that OPEC countries have agreed to reimpose a production ceiling and to drop production to 32.5 to 33 million barrels a day. At the low end of the range that would amount to a decrease in production of 750,000 barrels a day from what OPEC says it pumped in August. West Texas Intermediate is up 4.48% to $46.67 a barrel today and the Brent benchmark is up 5.11% to $48.32 a barrel. But this is a typical OPEC “agreement.”
