Oil prices shot up more than 6 percent this week on the news that OPEC reached a deal to cut oil production, but by Friday the rally seemed to be already running out of steam as the markets grew skeptical of the group’s ability to implement the deal.
Previously, I noted how there were reasons to question how serious the production cut actually might be. This was due to the difficulty in actually agreeing on the details of the reduction, rising oil production within OPEC that could offset the cut, and the small size of the planned cut itself (200,000 to 700,000 barrels per day).
But in the days that followed Wednesday’s deal, a few more wrinkles emerged that could complicate OPEC’s chances of having a meaningful impact on the global oil supply surplus. First, even as the ink was drying on OPEC’s announcement, Iraq’s oil minister disputed the data used to calculate his country’s total oil production. In OPEC’s monthly reports, the group lists production totals using both direct and secondary sources. The discrepancy matters because if Iraq’s production is actually higher than OPEC says it is, then Iraq should be allowed to produce more under any hypothetical allotment apportioned to it after November’s meeting.
“These figures do not represent our actual production,” Iraq’s oil minister Jabar Ali al-Luaibi told reporters. If the figures are not corrected by November, he said, “then we say we cannot accept this, and we will ask for alternatives.” If the dispute is not resolved, Iraq’s dissent could sink the deal. Moreover, even if they do iron out the data differences, it will probably need to be in Iraq’s favor, considering the minister’s insistence.
Needless to say, there are a lot of uncertainties after the Algiers announcement, which helps explain why the oil price rally ran into a wall less than 48 hours after the agreement, stopping short of $50 per barrel.
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