OPEC’s signing of the deal in November 2016, designed to reduce global oil production by 2%, via the incorporation of non-OPEC members, primarily Russia, and significant reductions to be made by the cartels de facto leader, Saudi Arabia, have been successful in pushing prices of the commodity to its highest level since July 2015.
However, despite bullish bets on both WTI and Brent, the global oil benchmark, concerns regarding the capacity of U.S. shale producers to hamper the march of oil remain.
Worries regard U.S. shale producers cashing in on the higher prices provided by the production cut ironed out in the November deal by OPEC and non-OPEC members, via an increase in their own production, despite reductions made by constituent member nations within and outside of the cartel.
With the market in a deep glut since its slide in July 2015, OPEC adopted a policy to weather the storm – continuing to flood the market into increased surplus by pumping ever-expanding volumes of oil, or simply maintain excessive production. Particularly Saudi Arabia, keen to push competitors from the market place, thus corresponding with a policy of gaining increased market share, prior to pushing the prices to 2015 levels and higher via a production cut.
However, the cartel, after months of failed discussions, finally agreed to a production cut, out of an increasing desire to avoid excessive national deficits – with economies bearing significant orientation about the commodity, and ironed out the November deal.
U.S. shale producers, which had suffered considerably during the depths of the glut, have started to regain capacity for significant oil production. This is providing incentive for some investors to maintain caution in regard to the placing of excessively bullish bets, despite apparent compliance by OPEC members with the November deal.
It remains to be seen exactly how U.S. shale producers will respond to increases in the price of the commodity, as well as if OPEC members will continue their apparent compliance with the premise of the November deal to reduce production.
Chart from: https://www.dailyfx.com/crude-oil
Showing the decline in WTI crude since July 2015, as the market entered a period of deep excess, prior to the increase in oil prices as OPEC agreed to reduce production.