• 5 minutes Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 8 minutes China Faces Economic Collapse
  • 12 minutes Oil Production Growth In U.S. Grinds To A Halt
  • 14 minutes Iran in the world market
  • 17 minutes Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 3 hours USA Wants Iran War -- Shooty Shooty More
  • 3 hours Experts review drone damage . Say Saudis need to do a lot of explaining.
  • 8 hours Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 7 hours Yawn... Parliament Poised to Force Brexit Delay Until Jan. 31
  • 1 hour Saudis Confirm a Cruise Missile from Iranian Origin
  • 4 hours The Spy Money: U.S. Wants To Seize All Money Edward Snowden Makes From New Book
  • 33 mins Aramco Production
  • 10 hours Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 44 mins Trump Will Win In 2020 And Beyond..?
  • 20 hours USA : Attack came from 'Iranian soil'. Pompeo to release 'evidence'.
  • 2 hours The Belt & Road Initiative: A Wolf in Sheep's Clothing?
Oil & Gas 360

Oil & Gas 360

From our headquarters in Denver, Colorado, Oil & Gas 360® writes in-depth daily coverage of the North American and global oil and gas industry for…

More Info

Premium Content

OPEC’s Proposed Cut Will Not Be Enough To Boost Oil Prices

OPEC Production Cut of 1 MMBOPD Would Raise Oil Prices About $3; Equal Demand Growth Would Add another $4

As OPEC’s November 30 meeting in Vienna draws closer, the outlook for a production cut agreement is mixed. Sentiment was positive on Tuesday, with WTI rising 5.2 percent to above $45 after falling 4 percent in previous trading sessions.

A positive report from Bloomberg triggered a wave of short covering, helped by news of an attack on the Nembe Creek Trunk Line oil pipeline in Nigeria. While Qatar, Algeria, and Venezuela are pushing a last-ditch effort to finalize a deal, Saudi Arabia, Iraq, and Iran remain at loggerheads over how to share output cuts.

Reuters quoted a positive Commerzbank note saying “There is doubtless considerable pressure to take action, as the oversupply will not reduce itself.”



At the same time, BP CEO Bob Dudley told Bloomberg Television that people are generally “pessimistic about a potential agreement,” pointing to recent prices in the lower $40s. Failure to reach an agreement would cause prices to “stay around the level we’re at.”

A 1 MMBOPD cut starts to look kind of small

With all this noise going on, Oil & Gas 360® looks at EnerCom’s WTI model to predict how prices would react under different scenarios.

OPEC nations produced 33.7 MMBOPD in September while non-OPEC production provided about 56.2 MMBOPD. With global production at about 90 MMBOPD, the one-million barrel cut necessary to bring current OPEC production in line with the production ceiling of 32.5 to 33 MMBOPD announced in Algiers starts to look kind of small.

The fact remains that the world is still awash in oil, and regardless of what OPEC (the Saudis) say they will do at their upcoming meeting, higher prices will require more significant cuts than one million daily barrels.

(Click to enlarge) Related: Strikes Loom As Algeria Plans Tax Hikes To Offset Falling Oil Revenue

Many countries with NOCs are desperate to generate more revenue and they are not keen on lowering their production. At the same time the world’s oil producers are eager for prices to rise, at which time they will increase drilling and completion activity and grow production. In turn the higher oilfield activity will increase supply and dampen any price gains. As welcome as OPEC cuts would be, they are not likely to be of the size that will drastically alter the fundamentals.

EnerCom’s oil model is currently predicting that a 1 MMBOPD cut in OPEC production would result in a $3 increase in oil price, all else equal. At current levels, that would push oil into the upper $40s. Of course, an agreement followed up with actual production declines would also boost market sentiment a lot.

The One-Two Punch?

Supply is only part of the picture and markets have responded much more favorably to demand increases in recent years. The ideal scenario would be a supply cut coinciding with a demand increase from developing nations such as China or India.

At current prices, a supply decrease and demand increase of 1 MMBOPD would easily push fundamentals into the mid-$50 range, all else equal.

By Oil & Gas 360

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • Bob on November 17 2016 said:
    How difficult could it be for the world's 15 major producers to divide a cut of 1 million barrels per day?
  • Nikita on November 28 2016 said:
    Error: BP CEO Bob Dudley and not Bill Dudley..!!

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play