For those of you who still don’t know, OPEC decided to cut its production quotas all the way down to 32.5 million barrels a day during the recent summit in Vienna, which took place on the last day of November 2016. The production cuts already triggered a price rally in the global market of crude oil. This is good news for all oil-producing nations around the globe since higher prices mean higher income from oil exports for those nations.
However, some experts are still skeptical and say it’s too early to consider it a victory. The thing is that the Vienna Accord is still a preliminary agreement and it still needs to be implemented. At the same time, for the accord to take real and considerable effect, OPEC needs to make non-OPEC nations including Russia join the agreement. While Russia promised to join the agreement, the agreement may well be canceled since there were cases in the past when some of the parties that singed similar agreements violated them later on. Moreover, Russian oil experts say that it will be very difficult for Russia to make those promises come true.
We remind you that OPEC nations agreed to cut their total daily production by 1.164 million barrels within the first half of 2017. This is 32.5 million barrels a day. Saudi Arabia as the leading OPEC nation promised to be responsible for the most of the production cut – 486K barrels a day. The UAE, Iraq, and Kuwait are ready to cut their production by 139K, 210K and 131K barrels a day respectively. The rest of the OPEC members are ready to cut their production by an amount under 100K barrels per day.
Iran is the only OPEC member who was allowed to continue boosting its oil production all the way up to the level seen before the Western sanctions and later cap it there at 3.8 million barrels per day.
Non-OPEC members are expected to cut their oil production by 600K barrels per day. Russia promised to cut its oil production by 300K barrels per day as the world’s biggest oil producer outside of OPEC.
Oil Predictions
At the same time, some experts chilled the overall optimism. Some of them say that the Vienna Accord is not going to improve the situation in the long run. Even if the plan is implemented, the market is still going to be affected by excessive oil inventories around the globe. And the balance can only be restored no sooner than the 2nd half of 2017.
Other experts say that the plan is very difficult to implement. The oil futures can see some appreciation in the near future, but as soon as the market starts figuring out that the plan is not implemented properly, the prices are going to drop all the way down to $45/b and below. This remains to be seen. Everything depends on whether OPEC succeeds in implementing this ambitious plan without violating it and restoring the oil balance.
