The Hard Part | Russell T. Rudy Energy LLC
A recent article by Deon Daughtery in “Rigzone” observes that there was a collective sigh of relief across the global oil industry when both OPEC and non-OPEC producing nations agreed to a production cut. However, many energy investors temper their joy with concern that the parties to the agreement will not adhere to the agreed upon quotas.
OPEC will cut production by an impressive 1.2 million barrels of oil per day (bopd) and non-OPEC nations will cut another 600,000 bopd, half of which will be from Russia. Unfortunately, OPEC does not have a very good track record when it comes to complying with quotas, and Russia has its own agenda.
A note from Raymond James (RayJ) expressed cautious optimism, noting that based on history, we should not expect complete compliance. However, it went on to say, “That said, this is still a very bullish outcome, as it signals that OPEC is back in the game of managing the oil market and it helps an already improving global supply/demand picture.”
Morgan Stanley appears skeptical, noting that between 2000 and 2008, OPEC exceeded its agreed upon production level by 883,000 bopd. Extrapolating from this track record, they predict actual OPEC production to be closer to 33 million bopd than the 32.5 million agreed to. Goldman Sachs noted that OPEC has met production goals about 60% of the time from 1982-2009.
Goldman Sachs also observed that in 1998 Russia met its agreed production cuts, but from 1999 to 2002 it actually increased production, rather than decreasing as promised.
OPEC meets again on December 9. Until then it’s unclear what Libya’s and Nigeria’s roles will be. Morgan Stanley concludes that “Given likely cheating, seasonal demand swings, and varying production figures”, overall compliance is still in question.
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/147630/BLOG_OPEC .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
