Production cuts agreed.
What's this? Giles posting outside of his normal window? Don't worry folks - I haven't gone rogue on the team. I am posting at funny times for a few days due to travelling to Dubai to take a teaching programme for beginner traders. So, the odd post may pop up at strange times.
Well, OPEC have met and the end result is a total production cut of 1.2mln bpd from October's levels. OPEC producers will be making up 800mln bpd and non-Opec members will be making 400 mln bpd. The cuts are due to start in January for an initial 6 month period. The current plan is for the deal to be reviewed in April 2019. As many of you are aware the final OPEC decision was delayed last week and it was Iran that showed a reluctance to support the deal as they are still technically under US sanctions. In the end their insistence won out and, alongside Libya and Venezuela, they were exempted from the need to make cuts.
Another big player in the deal was Russia who initially stated that they would only cut a maximum of 150mln bpd. In the end they agreed to cut production by 2% from October levels which worked out at around 200mln+ bpd production cut. Saudi Arabia , the main player on the pack, are projecting to reduce their production considerably, In November they hit over 11mln bpd and they are predicting reducing that to around 10.2mln bpd for January.
Oil rallied on the announcement of the cuts , initially with relief that the deal did not collapse. However, the last time OPEC agreed cuts it supported the Oil market. This is despite the fact that compliance is a very difficult thing to police (nay, impossible) and non-compliance is so profitable So, I am getting a sense of deja vu for the support of near term Oil prices. Obviously the narrative of slowing demand via a slow down in Global growth as a fall out in the US and China trade 'war' may still play out. Also, what will Trump think of what OPEC has done? He was jubilant when Oil was falling, but how will he respond if and when oil prices start start creeping up? For now, I am optimistic on rising oil prices , subject to any new surprises of course and the review in Apri.