Of course crude oil spiked on the OPEC announcement. Keyword being “announcement,” not “action.”
Did that really surprise you? Sometimes a look in the rear-view mirror can offer a glimpse of what may soon lie ahead. To see where it takes us, it’s helpful to revisit two items from reputable news outlets on September 14 and October 26.
First, let’s listen to Terry Etam, an energy commentator for Canada’s BOEReport.com, who shared these comments in September:
“No one is better at manipulating the media than OPEC. The latest chew toy that’s enthralled the simplistic mass-market media is OPEC’s mulling a possible ‘production freeze’ as a means of bringing an end to low oil prices. After decides of listening to OPEC jerk the global media this way and that as part of whatever scheme they’re up to, one would hope the commentators would become a bit more discerning. But no, they continue to mindlessly trumpet whatever OPEC has to say.”
Perhaps a bit harsh, but is he wrong?
Now, let’s keep in mind that the planned production cut isn’t scheduled to begin until January and even then, quantifiable evidence that each of the OPEC countries is playing by the rules may be hard to come by. But what could kill the deal may not be OPEC’s own non-compliance.
Look at what Bloomberg reported in October:
“Even if OPEC defies a skeptical market by implementing output cuts in full, it still won’t drain the ocean of surplus oil already pumped from the ground. The Organization of Petroleum Exporting Countries aims to shrink the world’s bloated oil inventories with its first production cut in eight years, according to Secretary-General Mohammed Barkindo. Yet the bloc’s own data show that even the maximum reduction under consideration would barely dent record stockpiles next year. That makes securing help from competitors—chiefly Russia—critical to ending the glut.
Global supplies have exceeded demand for three years straight, resulting in the accumulation of an oil-inventory surplus big enough to fill about 160 supertankers. While cutting output to the lower end of the range adopted last month would stop a further expansion, it would curb the existing excess by just 11 percent next year, the group’s data show. If the organization can’t make a deal with Russia, there’s a risk of another price collapse, according to Commerzbank AG.”
Would you cover that bet?