Nothing will change materially in the oil market until there’s a significant stock draw, a development that appears doubtful, which could ultimately force OPEC to change strategy once again.
There are already signs that OPEC is committed to following through with pledges, even if indicators are contradictory and vague at the moment. The oil market has stabilized in the low-to-mid $50s, indicating the group has indeed put a floor under prices for the time being.
Renewed political turmoil and the takeover of major oil terminals last month didn't stop Libyan oil production from tripling since August. How long will it last?
OPEC is expected to finalize the details of its production cut next month, but in the meantime, the entire arrangement looks like a mess, with hole after hole being punctured before it’s even been fully agreed upon and implemented.
OPEC's past cuts were successful in tightening the global oil market and lifting prices, but the agreement last week in Algiers may not be sufficient to rebalance fundamentals, particularly since U.S. shale is poised to rebound.
Historically high oil output obscures the fact that OPEC is also experiencing some of its worst-ever unplanned outages. Combined, the volumes lost to violent conflict, political disputes and other setbacks add up to almost 3 mbd.
An agreement struck with the militia that has been blockading Libya’s critical export terminals of Es Sider and Ras Lanuf could, if it holds, allow the nation to begin recouping its badly needed oil revenue.
Libya's oil production has the potential to rise now that there’s been a merger of the two national oil companies and a likely re-opening of two major ports. But a swift rebound will be difficult, not least of all because of competing groups vying for control of the country and oil facilities remaining vulnerable to attack from ISIS.
A general consensus has emerged that upstream investment cuts will eventually push prices upward, resulting in a potentially dramatic correction that rattles the global economy. A price spike, while possible, is not yet a forgone conclusion.
Widespread hedging among U.S. producers and OPEC increasing its volumes even as some members deal with unexpected supply cuts have the potential to cap prices, or possibly bring about another leg downward.