The Cartel That Couldn’t Shoot Straight

I’ve always found OPEC’s real (as opposed to theoretical) power in oil markets fascinating. The following is a typical case in recent point:

OPEC had announced a cut of 1.2 million b/d in October, and another
500,000 b/d production cut is scheduled to take place in February. Our
analysis suggests that only about 65% of the agreed October cuts have
been implemented. [emphasis mine]

[via Raymond James]

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Comments

  1. Tomas Sancio says:

    There’s an excellent article in Canadian Transportation & Logistics (registration required) that explained why oil cuts don’t work. Their argument was that cuts just create excess supply which translates to inventory, but instead of the oil being stored in the buying country, it’s stored underground at the producing country. Besides, nobody can know for sure if a country is honoring its cuts or not. For example, Venezuela claims to produce 3.3 MM bpd when OPEC says that the number is much less (2.7 MM bpd IIRC). So if Venezuela says they’re cutting 1 MM bpd to 3.2 MM bpd, it wouldn’t make a difference.