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Business, Energy

Say It Ain’t So? OPEC Reaches Agreement to Curtail Production

opec_meeting_photo_2016Stunning markets everywhere, the Organization of Petroleum Exporting Countries (OPEC) actually delivered an agreement that has been in the making for a while. According to Bloomberg, the cartel members agreed to reduce output by about 1.2 million barrels a day by January 2017, fulfilling a plan sketched out in Algiers in September to cut its production to 32.5 million barrels. The agreement exempted Nigeria and Libya, but gave Iraq its first quotas since the 1990s.

Oil prices jumped more than 5% today, after the news of the agreement reached financial markets. Brent crude futures rose $2.72 on the day to $49.10 per barrel by 9:35 a.m. GMT, while U.S. West Texas Intermediate (WTI) crude futures rose $2.43 to $47.66 a barrel.

One of OPEC’s biggest concerns is that by cutting output it will simply cede market share to non-OPEC rivals. OPEC plans to hold talks with non-OPEC producers next week in Doha, according to Reuters.

As most gas and oil analysts will tell you, the proof is in the pudding when it comes to the deal. The strength of the deal will depend on whether all parties deliver on their commitment.

The last two years have been very painful for OPEC: The group will earn $341 billion from oil exports this year, according to the U.S. Energy Information Administration. That’s down from $753 billion in 2014 before prices crashed, and a record $920 billion in 2012.

 

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About Vi Brown

Vi is principal and CEO of Prophecy Consulting Group, LLC, an Arizona firm that provides business and engineering services to private and public clients. Prior to establishing her consulting practice in 2001, Vi worked with Motorola, Maricopa County Government, Pacific Gas & Electric, CH2M Hill, and Procter & Gamble. As an adjunct faculty member, Vi teaches undergraduate calculus classes and graduate level environmental courses. She is also a professional speaker.

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