CHART OF THE WEEK
After several missed opportunities, OPEC members have secured an agreement over potential oil production cuts. Oil prices rose following the announcement but remained below the $50 per barrel threshold that was only very briefly exceeded last June. The agreement represents an initial step, with a working group now to be formed that will establish individual output quotas to curb production to around 32.5-33.0 million barrels a day. In August, production stood at 33.2 million barrels a day. The next step will be for OPEC members to agree on actual production limits and to keep to them.
Our Analysis
Whatever happens, the size of the restrictions will not be enough to alter disequilibrium in an oil market awash with supply. As things stand, this output restriction is unlikely to lead to a significant rise in oil prices: gains in US shale productivity mean that supply could adjust quickly if oil prices increase, greatly limiting the potential for any recovery.
The opinion expressed above is dated September 30th, 2016 and is liable to change.
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