Hoping for higher oil prices, last year the OPEC and some oil nations outside the cartel decided to get united and unanimously cut their oil production. That was done to curb the overproduction and prevent oil prices from going further down. They believed that the prices would reverse and regain some of the lost ground. Even though the prices did really go slightly higher, the overall plan now seems to have failed since there have been no major gains since then. Now the prices are going down again and have already lunged below $50/b.
The so-called Vienna Accord took effect on January 1, 2017. As mentioned, it was expected to create artificial deficit and push the prices higher. To be more specific, the overall production cut should have amounted to 2,8 million barrels a day, with Russia cutting its oil production by 300K b/d or 3%.
The Vienna Accord was agreed to take effect for the next 6 months. The exporting nations still remember $110/b in 2011-2014 and they are still willing to bring those prices back. According to EverFX experts, the average cost of one barrel of Brent oil in Q1 2017 was around 55 dollars. This means that the current prices are still twice as low as the used to be more than 3 years ago, and the plan hasn’t helped a lot since being introduced. The average price hasn’t grown too much since the agreement took effect, which means the agreement has failed to reach the ambitious goal.
At the same time, those who signed the agreement doesn’t seem to be sticking to it. For example, Russia is reported to have increased its oil production by 0,6% in Q1 2017 as opposed to Q1 2016. They think that October 2016 is the starting point to consider oil production cuts, which is why it’s wrong to compare the oil production in early 2016.
If to revise the stats adjusting them to October 2016, April’s oil production in Russia dropped by 200K b/d. However, even if that’s the case, the plan is still can be considered a failure since Russia should have cut it by 300K b/d instead. Still, Russian officials reassure everyone that in May 2017 the production cut target is going to be reached.
As for other participants of the Vienna Accord, they also seem to be cheating and lagging behind the plan. This means that the overall production is going down slower than planned. Apparently, oil prices haven’t gone higher than $60/b over the reporting period. Now they are even going down for fear than the agreement is not going to be extended. Another reason why international traders and investors are concerned is that American shale oil companies are getting more active and making up for the production cuts. So now the near future of the oil market is questioned as we are waiting for another OPEC summit in the end of May.
