With oil prices roaring back, the OPEC+ output cuts are undoubtedly doing their job.
But they’re due to be reviewed in a little over a week, and the unwieldy group needs to ensure the fault lines between its de facto leaders, Saudi Arabia and Russia, don’t resurface. We all know what happened last time they couldn’t agree on the way forward.
For now, the results of the collaboration are almost too good to be true. In the first month of execution, the level of compliance achieved by most of the 20 countries that signed up to the deal has been astonishingly good. That may be a sign of their desperation as crude prices plunged below zero, or a reflection of the struggle to sell cargoes in a world where demand has collapsed.
Perhaps not surprisingly, countries outside the deal have played their parts too, as economic forces drove oil companies to slash output. But the extent of the moves are eye-popping. Weekly data show U.S. production down by 1.6 million barrels a day, or 12%, in two months. The real drop may be even bigger, as the Energy Information Administration can only make its supply and demand estimates balance with a -999,000 barrel-a-day “adjustment factor.” That’s the biggest negative potential-adjustment number ever and at least some of it is almost certainly an overestimation of production. In Canada, production in Alberta has fallen by a quarter, or 1 million barrels a day.
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