The OPEC and non-OPEC landmark deal to cut production by 1.8 million barrels a day in 2017 enters into force this Sunday. The first month of implementation will be key to understand whether everyone will respect the deal, but according to analysts full compliance is very unlikely. January will be “the first big test,” Alex Dryden, global market strategist
In late November, OPEC members pledged to cut production by 1.2 million barrels per day – for the first time in eight years. In early December, some non-OPEC countries, such as Russia, joined their efforts and promised to cut output by 600,000 barrels per day. Their aim is to lift oil prices.
“OPEC production cuts will help alleviate the current oversupply, allowing recent price gains to be sustained, and possibly providing momentum for even higher prices,” Thomas Watters, global ratings credit analyst at Standard and Poor’s, said last week in a note.
“But, as higher prices kick in, shale production would likely quickly ramp up, effectively capping oil prices above $60,” he added.
So far, Venezuela, an OPEC-member, has already confirmed that it will cut production by 95 000 barrels a day as of January 1. Given its economic struggles, implementing the deal is in its interest.
“A stronger dollar puts pressure (on financial balance sheets for some countries, like Venezuela),”
A stronger dollar means that some countries will be more indebted and thus forced to produce more oil to offset the impact on their balance sheets.
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