OPEC deal concerns:

  • While oil extending Wednesday’s ~9% rally, no shortage of skepticism surrounding OPEC’s deal to reduce production by 1.2M bpd to 32.5M bpd. Biggest area of concern not surprisingly revolves around compliance. Analysts noted that OPEC has a poor track record when it comes to compliance, with observed production cuts at 60-70% of announced cuts. Non-OPEC compliance was flagged as another big issue. Russia, which has said it will shoulder roughly half of the 600K bpd cut in output from the non-OPEC camp, has already said it will only be able to gradually dial back production due to technical issues. In addition, there continues to be speculation that Russia will really only be freezing output at current elevated levels. Other concerns have revolved around the potential for aggressive production ramps from Libya and Nigeria, both of which received exemptions from the agreement. There has also been a lot of discussion about how the deal makes it more economically attractive for a resilient US shale industry to boost production.