The agreements on freezing oil production are not as certain as we would like them to be

3 october 2016 | Rossiyskaya Gazeta

At a meeting in Algeria, members of the Organization of the Petroleum Exporting Countries cited a specific daily oil production which they intend to keep to. The cartel decided to produce between 32.5-33 million barrels a day. The stock markets and commodity exchanges rallied at first but then began to correct downwards. Analysts think the market has its doubts about the power of the OPEC.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

“The agreements they reach are hardly as certain as people would like them to be and there are no mechanisms for enforcing them in evidence either,” Analytical Center expert Alexander Kurdin commented on the situation for the Rossiyskaya Gazeta. According to him, if the OPEC had limited at the level seen in spring, that is at the lower boundary of the range they announced (32.5 million barrels) that could have had some serious consequences. “Then as early as in 1H 2017 we could see stocks getting depleted and then that would be followed by a shortage of oil and an increase in prices. The upper boundary of the range is rather pessimistic and does not really change anything. Especially, seeing how in the case of OPEC 33 can in reality end up being 33.2 or even 33.3 million barrels. Even when the cartel decided to cut back output in 2008 by 4 million barrels the actual reduction in output was less than 3 million barrels,” Mr. Kurdin said.

The publication notes that OPEC should confirm the agreement at their next meeting scheduled to take place in Vienna on November 30. And everything may fall through there as the members negotiate their quotas, or basically, who is going to have to limit their output the most. “In the past ten years OPEC has kept their country quotas secret, but historically it is always been Saudi Arabia that bore the brunt of any output cutbacks on account of their big market share and the preeminent role in OPEC,” the expert explained.