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Is the Oil Price Rally Squeezed Out?

OPEC agreement sees oil prices climb sharply. This week’s news that OPEC has agreed a 1.2 mb/d cut in output, starting on January 1 next year and lasting for at least six months, has seen Brent Crude rise by over 10% to around $54.

If implemented fully, the agreement could see the two-year oversupply of crude come to a halt during 2017Q1. But there are several risks to a continued upswing. First, the deal requires the co-operation of non-OPEC oil producers who are expected to cut production by 600kb/d. So far only Russia has formally indicated that it is willing to comply, although a scheduled December 10 meeting between OPEC and the other major non-OPEC producers may see further success. Second, the recent rally may tempt more US shale producers into the market as well as soften crude demand. A decision by President-elect Trump to reinstate sanctions against Iran also poses a threat to the agreement. If implemented fully, the agreement could see the two-year oversupply of crude come to a halt during 2017Q1.