OPEC: Has The Cheating Already Begun?

Oilprice.com ^ | 13-12-2016 | Ozzie

[bananaman22]

With the deal now done, we seem to be witnessing history in the making. But remember: history always repeats itself. When two agreements were signed in the early 2000s, both collapsed due to the inability of OPEC members to adhere to their commitments. Hence, the chance of the deal dying an early death is all too real. One of the factors that will bridle prices in the near future is the rate at which global stockpiles will deplete. My previous article explored the different factors that may spur U.S. Shale production. On the 10th of December, OPEC successfully convinced the NOPEC producers to curb oil production next year. But another factor, the most sensitive and uncertain one, is the adherence to the deal. If producers do not see any significant change in prices, the situation will inevitably deteriorate. That is why the first 6 months, after which there will be another meeting to check the results, are going to be very significant.

As per the agreement, NOPEC producers have agreed to cut 558,000 barrels a day and OPEC producers will cut 1.2mbpd. Saudi Arabia will take the biggest share of this, cutting 486,000 barrels per day. Russia will contribute 300,000 barrels per day to the total NOPEC production cut. All this amounts to 2 percent of global supply. Azerbaijan, Oman and Mexico will also contribute, reducing production by 35,000, 40,000 and 100,000 barrels per day respectively. In reality however, producers like Mexico, which is set to experience “natural declines”, are going to sell these declines as a cut. A natural decline is the drop in yield as a field age with time.

[Mr. Douglas]

I noticed there was a slight spike at the pump locally for a few days and it dropped again. I buy gas every two days for my commute.

[Zarro]

Hard keeping them lies straight, ay Josh?

[Gay State Conservative]

I've read that newer US (and Canadian?) producers have been able to lower costs and ramp up production on short notice.Under DJT I hope that drillers and producers are freed from regulations established by Obola’s “watermelons”.OPEC is the West's enemy.Russia is the West's enemy.Drill here,drill now!

[G Larry]

The cheating never stops.

They just hope the other guys comply for a while, so they can situate for better market share.

[apillar]

OPEC and the days of price controls are dead. Once oil hits the $70 range, the oil shale production will come back online and replace any OPEC cuts stabilizing the market in the $50-$70 dollar range. OPEC shots\ themselves in the head several years ago when they got greedy with the $100+ oil that allowed the oil shale industry to get off the ground...

[Obadiah]

All of this is just Kabuki to move the oil market higher, nothing more. Almost everyone understands that there is absolutely no agreement. It’s all posturing. Saudi Arabia and others are desperate for oil revenue. All this Kabuki raises the price oil while they cheat and maintain production. Only the traders are playing along because they personally benefit.

[gogeo]

But...peak oil.

[RayChuang88]

Anyone who’s taken a college course in Economics know that cartels usually fail because of the economic incentive to “cheat” to sell a product at a lower price for each cartel member.

[Dr. Sivana]

Anyone who’s taken a college course in Economics know that cartels usually fail because of the economic incentive to “cheat” to sell a product at a lower price for each cartel member.

They also fail faster when the cartel has a dominant, but not overwhelming position in the market.

OPEC members (Wikipedia): Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela.

No U.S., Russia, Norway, Canada, Mexico, U.K. North Sea, (#2,10,11,12,20 exporting with the U.S. being huge producer that doesn't export as much) in OPEC, and many others who will happily make up the shortfall.