Production cut OPEC agreement

Production Cut Agreement Remains on Shaky Ground


The tenuous OPEC agreement to cut oil production over a six-month period, has always been fraught with concern that countries would violate the agreement in order to further their own self-interest. Saudi Arabia is definitely keeping tabs on any such violations, offering a veiled threat of increasing their own production if they continue to detect violations, which would effectively gut the deal.

The Saudis were annoyed with countries who sought to take advantage of their reduced output in order to increase their revenues and gain greater market share. Specifically, the Kingdom is looking at non-OPEC countries like Russia, which had pledged to reduce their production by 300,000 barrels per day. That threshold remains far from being reached, with the most recent report showing that the Russian output has only dipped by one-third of that amount.

Such agreements are usually forged only after rancorous debate, which is what it took to reach this current agreement. Yet, financially-strapped Venezuela has apparently ignored the directive, as has Angola. In addition, United States-based oil companies saw a potential opportunity when the deal was first announced, which is why there’s been a 30 percent rise in the number of drilling rigs since that time. That rate is the highest in two years, when the oil crash slide was continuing.

There was some controversy attached to statistics released by OPEC that appeared to show that Saudi Arabia had already bumped up its production. That’s because statistics based on primary sources shows a production increase of 360,000 barrels per day, while secondary information indicates a drop of 68,000 barrels.

The Saudi attempt to clarify the number by stating that there was a negligible increase just muddied the waters further. Oil markets took note and their trading resulted in a dip of two percent per barrel.

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