The Trend

OPEC Oil Production: Why We Don’t Expect a November Deal

It’s an absolute mess.

After dipping to a low of $39 in August, oil rallied to a high of $51.19, on hopes that OPEC and non-OPEC countries can put aside their difference and curb oil production.

Even Russian President Vladimir Putin has said the country was ready to join OPEC efforts to curb supply. Unfortunately, there’s just one small problem with that.

At the moment, Russia is now unsure of whether it will freeze or cut its output.  It’s also noting it could raise output by 4.02 billion barrels next year.

Worse, its energy giant, Rosneft is refusing to cut production altogether. 

Instead, the company, which produces 40% of Russia’s oil and more than 5% globally, has noted it would raise production above the 4.1 million barrels a day it produced in 2015.

Other OPEC members don’t seem to have any intention of helping either.

In fact, after the last OPEC meeting, production jumped by 170,000 barrels a day to 33.75 million barrels a day in September.  It’s also 1.3 million barrels above the 2015 average.

That’s a new output record for those of you keeping score.

At the same time, Iraq increased production by 105,000 barrels a day to 4.4 million.  The country is now refusing to join the OPEC deal, too.  They refuse to reduce current production of 4.774 million barrels a day, and exports of 3.87 million barrels.

Nigeria increased production by 95,000 barrels a day.  Libya added 93,000 barrels a day to 363,000 with an increase to 600,000 barrels a day likely by the close of October.

Iran increased production by 10,000 barrels to 3.63 million a day.

Oddly enough, Iran is ready to encourage other OPEC members to cut output and bring stability to oil prices.  Yet, it’s not ready to curb its own production.

The supply-demand picture isn’t looking healthy either.

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In fact, global oil supply for September just hit 97.2 million barrels a day – 600,000 more than August 2016, and 200,000 more than September 2015.

Meanwhile, China’s oil demand in August fell by 4.3% year-over-year to 10.76 million barrels a day thanks to falling demand for gasoline and fuel oil.

At the same time, the International Energy Agency (IEA) just predicted that global oversupply of crude oil would last until the second half of 2017.  It also said that demand is rising at a slower pace than expected, lowering its oil growth forecast by 100,000 barrels a day to 1.2 million barrels from 1.3 million barrels. 

However, the agency indicated that if OPEC sticks to its new targets, a rebalancing could come quicker. 

While the price of oil has regained some lost ground to around $50 per barrel, the higher price may be short-lived because of the failure to really curb production.

In short, don’t hold your breath for an oil rally. 

OPEC and non-OPEC countries really are not interested.  And unfortunately, each member state will suffer under the weight of lower oil prices.