Saudi Arabia told OPEC that it has lowered its January oil production rate by the most in eight years, as the country complies with a deal to reduce the amount of supply in the market. OPEC is slashing about 1.2 million barrels per day from the first of the year.
Other non-OPEC producing countries, such as Russia, have agreed to reduce production as well, but by half that amount.
Despite the announcement from Saudi Arabia, oil prices are trading in the red on Monday due to signals of rising production out of the U.S. Prices were down by close to 2% this morning.
In an appearance Monday on "Bloomberg Markets: Americas," Bloomberg managing editor for energy and commodities Will Kennedy said he sees a problem in the OPEC deal in that it will cut production, but other producing nations will step in to fill the void.
"One of the things we've seen in the early part of this year is that shale production is coming back very, very strongly with these higher prices above $50 a barrel. American producers are drilling again, they're producing more oil, which is 50,000 barrels per day extra each month and clearly that's limiting the price impact of OPEC's cuts," Kennedy explained.
Kennedy also noted that prices are getting extra pressure on Monday due to the stronger dollar. When the greenback rises, dollar-dominated commodities tend to become more expensive for those that hold other currencies.
BloombergTV anchor Mark Barton asked Kennedy to predict what will happen in six months when the deal runs out.
"Ultimately, it will depend on Saudi Arabia's view of where they are," Kennedy responded. "Saudi Arabia is hopeful that within the six months, they can balance the market, they can get global stockpiles falling, they can fundamentally shift things and they don't have to necessarily renew [the deal]."