According to a Reuters source, The Organization of the Petroleum Exporting Countries has in fact reached a deal that will "limit" oil production, and oil prices are in for a wild ride yet again as a result.
What was reported as mere rumor this morning, is apparently now a certainty. Reuters had reported this morning that OPEC may announce an output freeze deal later today, as part of the informal talks on the matter on the sidelines of the International Energy Forum, but details of the deal would be withheld until November.
The market was already moving upward on the back of this morning's EIA report, which reported a draw in crude oil inventories of 1.9 million barrels-the fourth draw in a week. The news that there is a deal-any deal-will send prices higher.
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Image source: Zerohedge.com
The 32.5 million bpd production "limit" that OPEC reportedly agreed upon, of course, could be difficult to achieve as OPEC's August output amounted 33.24 million bpd - altogether, this output limit is unlikely to do much in the way of structurally stabilizing prices. In all likelihood, a final deal would include some concessions for Iran, who has dug in their heels on the issue of ramping up oil production to previous levels. And any deal certainly does not yet include an agreement from Russia, who is producing oil in record quantities.
On top of those unknowns, the deal will not be executed for a couple of months, so in the meantime, Iran, Russia, and Saudi Arabia-along with Libya and Nigeria who are ramping up production-will be adding to today's supply glut, with US inventory draws remaining insufficient to rebalance the equation.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More
Comments
It would seem that to freeze or marginally reduce OPEC production while letting some major players like Iran, Nigeria, and probably Iraq increase production implies other members will have to voluntarily reduce production. What are the odds of that happening with the ever present US shale threat?
A telling sign might be that no member allocations have been decided yet, which is really the deal that needs to be agreed upon. Could be OPEC had to announce something positive in Algiers just so they wouldn't look ridiculous.
I guess we'll see in November but if oil prices rise a bit in the meantime and US producers are able to sell more stock to fund further drilling, this OPEC maybe agreement may have pushed out noticeably higher oil prices rather than bringing them closer.