The cuts made by Saudi Arabia and the rest of OPEC when it comes to daily oil production figure to take quite a while before they have the impact being sought. Thinking otherwise is the equivalent of expecting the massive ships that carry this commodity to turn on a dime. In short, it’s an impossible task.
Those who speculate in the oil business have spoken about dramatic shifts having taken place with regard to the price of a barrel of oil. While prices did indeed move up following the production cut news, the numbers that were thrown about turned out to be more like psychological hyperbole.
The reason stems from the simple fact that this situation has grown and then festered for the past 30 months. During this time, prices have been cut in half and dropped to levels not seen in nearly two decades. Expecting steep jumps in the next few months isn’t realistic.
One factor is the timing of the announcement, coming during the traditional time of year when oil consumption is traditionally lower. Another is the fact that the Saudis’ defiance in not cutting back left them with ample supply, with plenty of their customers also taking advantage of the lower prices to build up their own inventories.
Saudi Arabia’s energy minister, Khalid al-Falih, didn’t venture a guess as to when the reduced supply will start to take effect. OPEC had publicly stated that the latter half of next year would be a likely start. That would coincide with the summer months, when consumption is at its greatest.
However, in the past, the Saudis and OPEC didn’t have to worry much about the shale market in the United States. That’s no longer the case, which could throw projections out the window.