Global oil prices are slipping back from the 18-month high they reached after the Organization of Petroleum Exporting Countries (OPEC) reached agreement to limit production, as analysts begin questioning whether countries will actually keep the promises they made toward the end of last year.
“Oil rose in 2016 for the first time in three years as the Organization of Petroleum Exporting Countries and 11 other countries agreed to cut output starting January 1 in an effort to reduce bloated global stockpiles,” Bloomberg reports. But Libya, which did not sign the OPEC deal, is ramping up production, and the oil rig count in the United States reached its highest level in late December since the previous January. In response, the price of benchmark West Texas Intermediate (WTI) fell 2.6%, to US$52.33 per barrel, while Brent crude was down 2.4% to $55.47.
“Too much faith has been put in OPEC and the other countries that have promised cuts,” New York-based hedge fund partner John Kilduff told the news agency. “They have been increasing output the last few months, so the cuts will be like a New Year’s crash diet, and we know how those end.”
Bloomberg says a rising U.S. dollar has also driven oil prices down, but skepticism about oil producers’ compliance with the OPEC agreement goes beyond Libya. Oilprice.com reports that Iraq’s exports are set to increase 7%, rather than falling 4%, with the Iraqi government blaming producers in the country’s autonomous Kurdish region. And Bloomberg “gadfly” Julian Lee points to Nigeria as well as Libya as countries that never signed the supply management deal and could ramp up production enough to “seriously erode the effectiveness of OPEC’s output cut.”
Russia is one of the oil producers outside OPEC that joined the deal. But Reuters reports that the country continued to pump a record 11.2 million barrels per day last month, and is now saying its output reductions will be gradual—and may be temporary.
“Russian producers have significantly increased drilling over 2016 in efforts to stem field decline,” the International Energy Agency’s Toril Bosoni told the news agency. “While little information on the duration of production cuts has been made public, provisionally we assume that output will rise gradually again during the second half of 2017.”
And despite all the hype over oil prices in the $55 per barrel range that would have been unthinkably low two to three years ago, the U.S. Energy Information Administration reports that the oil price thresholds in 2016 still fell below 2015 averages
