FX.co ★ OPEC production cuts to catapult US shale producers

The historic OPEC agreement on production cuts was eventually finalized on November 30 following painstaking talks. The cartel consisting of 14 largest oil producers reached an accord to curb production for the first time since 2008 in a bid to stabilize global supply and demand and support prices. Earlier, OPEC made a tentative agreement in Algiers in September.

The deal used to be on the verge of failure due to standoff inside the cartel. Some OPEC members claimed to be exempt from production cuts. In the end, all OPEC countries came to a common denominator. The Organization of the Petroleum Exporting Countries, which accounts for a third of global oil supply, decided to slash production by nearly 1.2 million barrels per day, or over 3%, to 32.5 million bpd. The deal will come into force since January 2017 for the term of 6 months. Besides, energy investors cheered the move that non-OPEC producers joined the pact. Russia pledged to cut its oil output by 300,000 barrels per day in the first half of 2017. Nevertheless, some analysts still warn of a high probability that the global oil glut will be a thorny issue next year.

There is another problem which poses a threat to the equilibrium of the global oil market. US shale drillers are more resilient to low oil prices than expected. So, US energy companies are launching more and more drilling rigs into operation. Amid growing oil prices, US shale producers will be interested in opening new drilling rigs.