ASSESSMENTS

For OPEC, a Production Cut Aims to Head off Further Price Drops

Sep 30, 2016 | 09:01 GMT

OPEC members at the International Energy Forum in Algiers agreed in principle to a reduction in oil production, but many facets of the deal remain unresolved.
OPEC members at the International Energy Forum in Algiers agreed in principle to a reduction in oil production, but many facets of the deal remain unresolved.

(RYAD KRAMDI/AFP/Getty Images)

Forecast Bullets

  • OPEC's production deal is designed to ensure that crude oil prices do not fall further, not necessarily to push them up significantly.
  • OPEC members must now try to put aside their differences and hammer out the details of how to implement the deal.
  • Even if it survives negotiations and is approved, the deal will not have a huge effect on the direction of the oil markets. Oil price recovery will continue, albeit fitfully, and OPEC can do little to accelerate the process.

OPEC has finally reached a tentative deal to cut crude oil production, but it does not mean much yet. OPEC members settled on the outline of an agreement Sept. 28 on the sidelines of the International Energy Forum in Algiers. Terms include cutting crude oil production from roughly 33.24 million barrels per day to between 32.5 million and 33 million bpd. The cut is marginal, but if enacted, it would be the first for the group since the height of the global financial crisis in 2008. It would also mark the cartel's first coordinated response since oil prices began tumbling in June 2014....

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