Erik Townsend and Aaron Chan welcome Art Berman to MacroVoices. Erik and Art discuss:
- OPEC’s latest production cut agreement and what it means
- Production cut being more akin to a floor than a ceiling
- False conception of cutting production to bring balance to an already-balanced market
- How excess oil in storage will suppress prices for some time to come
- Weak demand growth similar to late-2014 won’t support higher prices
- Resumption of U.S. production in response to higher prices
- OPEC not being as desperate as portrayed by the media
- Weakening global economy as the main driver for low oil prices
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This New Year’s resolution from OPEC is no more convincing than if a gamblers anonymous meeting sat down and all pledged to gamble less from January for 6 months.
How far into 2017 will it be before anyone can tell if any production cuts have been implemented?
What if OPEC tells everyone it has cut production but the oil supply keep inexplicably rising?
It would only take a small shift in any members economic fortunes for them to justify to themselves and to the others that they had had to increase production on account of whatever unforeseen circumstances. As soon as one breaks ranks the others will follow suit if they were actually cutting in the first place.
The markets seem to be placing a large amount of trust in the possible unity of a group of nations who are not particularly trustworthy and whose ‘interests’ are never fully aligned.
Is the OPEC production cat any more likely to materialize than the immanent central bank hiking cycle we have been hearing about for donkeys years now?
Simon,
You are correct and that is why everyone with any historical perspective says something like, Words are interesting, action matters. I don’t have any expectation that OPEC production cuts will be as great as the supposed accord levels. It is convenient that they decide to cut just as their production is at a maximum rather than acknowledge that they have no spare capacity other than heavy, sour oil that nobody wants.
All the best,
Art