In November of 2016, the 14 member Organization of Petroleum Exporting Countries (OPEC) reached a deal to lessen oil production for the first time since 2008. This decision signals OPEC’s effort to bolster oil prices, which were historically low in 2016. Brent crude oil fell to $27.67 in January of 2016, the lowest since 2003. Global oil prices have fallen since 2014 due to U.S. shale oil production and general global oversupply.
This agreement aims to trim oil production from 33.8 million barrels per day (b/d) to 32.5 million b/d starting on January 1st, 2017. However, the success of this agreement largely depends upon the cooperation of non-OPEC member countries as well as the production of U.S. shale oil.
Rising U.S. shale oil production continues to threaten the benefits of the OPEC agreement. According to an Energy Information Administration report, U.S. shale oil production is expected to increase in seven major regions by 800,000 b/d in March, potentially thwarting benefits to economies like those in OPEC who primarily rely on oil production for their GDP. This would bring total U.S. shale oil production to 4.87 million b/d. On Monday, the EIA announced its new expectations for February at 4.79 million b/d.
According to a monthly report released last Friday, February 10th, OPEC oil production has achieved a 90% decrease in scheduled oil production cuts, evidence of some mutual compliance amongst the oil cartel. While countries like Saudi Arabia, Qatar, and Angola cut more oil than they pledged, countries like Iraq only cut about half of their promised about while Venezuela cut only 18%.
Brent crude oil has stabilized to above $50 since OPEC member countries agreed to reduce production last November. The market may see a stable decrease in prices as U.S. production begins to frustrate OPEC member countries and challenge their cooperation to the agreement.
Independent Finance | Economics Blogger