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.
Yesterday, January 30, oil prices fell as another increase in the number of oil rigs at work in the U.S. met skepticism about OPEC’s ability/willingness to meet its full goal for cutting production
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.
Today Kuwait and Oman announced that they have cut their production to meet the terms of the agreement. Kuwait has reduced production by 130.000 barrels a day to 2.75 million. Oman has cut 45,000 barrels a day from its prior production of 1.01 million barrels a day. That’s two OPEC producers down and 22 to go.
Global oil stockpiles will fall by about 600,000 barrels a day in the next six months, the IEA forecasts. That’s six months earlier than the agency had forecast for supply to move to a deficit. But the forecast came with a big “if.”
Yesterday I wrote that the financial markets’ reaction to whatever came out of OPEC’s meeting today would depend on how weak or strong the agreement to cut production was. Well, the actual agreement announced today to cut oil production was far stronger than expected. That surprise sent oil markets soaring today with U.S. benchmark West Texas Intermediate up 8.34% to $49.00 a barrel. The Brent benchmark rose 8.82% to $50.47 a barrel.
Now Wall Street is talking about language. That isn’t a vote of confidence that OPEC will be able to agree on meaningful cuts to production at its November 30 meeting.
