Wary markets await hard evidence of impact of OPEC crude oil-production cut

Today (13 February 2017)  the first official data is released by OPEC, showing January production levels and therefore the level of compliance with the promised cuts country-by-country.

Observers expect the report will indicate overall compliance of the OPEC countries to be in excess of 90%.

However, the key question for the oil market is this: How long can OPEC sustain this deal?

Spencer Welch, OPEC expert and Director at IHS Energy and OPEC expert, commented: At the end of 2016, OPEC and several non-OPEC oil producers did a historic deal cut to production by 1.8 million barrels per day starting from January 2017.

“OPEC’s achievement was significant. It took six months of negotiations and should not be underestimated. Compliance is expected to high, but short of 100%. The key question for the oil market is how long OPEC can sustain this deal.

“Historic analysis of similar production limits suggests that 100% compliance is unlikely. High compliance is reliant on strong support from Saudi, UAE and Kuwait. Additionally, while the OPEC cuts are promised, Russia’s reduction contribution, which is 50% of the promised non-OPEC cuts, will be phased in through the first six months of 2017.

“The compliance levels from the non-OPEC contributing countries will take longer to become clear, because of data release delays. 

“The big questions on the future of the deal remain unanswered. US production is beginning to ramp up and could grab the market share released by OPEC.  This could put the future of the deal into question. 

“Both Libya and Nigeria, although OPEC members, we excluded from the deal because current production is significantly below their historic average.

“If either was able to recover production then this will add further pressure to the deal.”

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