After nearly two years of squabbling over how to react to plunging oil prices, members of the Organization of the Petroleum Exporting Countries (OPEC) have agreed to a production cut. According to the Nov. 30 deal, the bloc will collectively reduce its output (based on October figures) by 1.2 million barrels per day beginning New Year’s Day. In the wake of the announcement, global oil prices jumped by as much as 9 percent.
Nevertheless, the agreement is unlikely to keep propping up prices in any significant way in early 2017. The market will still be oversaturated, even with OPEC’s cutbacks and record high levels of energy supplies in storage.
Of course, the latest deal was designed less to boost prices than to keep them from dipping lower, and to encourage a global shortage. Even that, however, will be difficult to fully achieve, despite the bloc’s newfound consensus. OPEC states have a history of cheating on their quotas and this time will be no different. As many of the bloc’s members continue to struggle with their own financial challenges, their united front could crack and, in time, crumble. And though oil prices may now increase to between $50 and $60 per barrel, they will rekindle North American shale production if they rise much more, potentially capping any significant recovery in prices.
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