OPEC's deal on production has unexpectedly received buy-in from the organization's top producers and drove prices up more than 8% on world markets.
Crude oil futures for January delivery opened at $49.07 on the CME Globex, reaching a mid-day high of $50.97 and a low of $48.98. February 2017 contracts opened at $50, reaching $51.81 with a low of $49.94.
At its Nov. 30 meeting in Vienna, OPEC said that its members would cut production from 33.6 million barrels a day to 32.4 billion. Production was at 33.83 barrels during the third quarter. The four Gulf States, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, signed on as did Iraq, Iran and Venezuela. Nigeria, OPEC's 7th largest producer, did not sign on; nor did Indonesia or Libya.
OPEC, however, is well-known for making such agreements only to watch them fall apart. David Lafferty, Boston-based chief marketing strategist at Natixis Global Asset Management was reluctant to use the term "cartel" to describe OPEC. "A cartel requires internal cooperation among entities and some control over production or price," he said. "It isn't clear the OPEC meets either of those criteria today.
Barriers to the cuts could come on multiple fronts--from members who fail to observer the cuts in the long- or near-term, from non-OPEC members who similarly increase output and from shale producers who flood the market. "Saudi Arabia tried unsuccessfully to break U.S. shale oil production through excess supply." said Lafferty. "Ironically, it's U.S. shale production that is breaking down OPEC and Russia. It's an industrial example of technology leading to disruption."