From JR Crooks: In 27 days, the Organization of the Petroleum Exporting Countries will meet again in Austria. There, “The Cartel” will officially announce the future of its agreement to cut oil production.
Last year at this time, the cartel moved away from its so-called “pump-at-will” policy introduced in 2014. A policy that left the world awash in oil, with a glut that kept a bearish lid on prices for two years.
For the first half of 2017, OPEC and other producers (including Russia) agreed to cut production to 32.5 million barrels per day (bpd). And in June, they pledged to do “whatever it takes” to support oil prices. That meant extending their production cuts of 1.8 million bpd until the end of March 2018.
Everyone and their mothers want OPEC to keep their cuts going, so that the price of oil can remain higher for longer.
Keep in mind that U.S. producers aren’t restrained by the OPEC agreement. And they have been taking advantage of the situation.
One commentator suggests Big Oil loves that OPEC is complying with production cuts, believing they have been influential in keeping the price of oil supported.
That might explain why Big Oil has been rocking and rolling through third-quarter earnings season.
Total (TOT), ExxonMobil (XOM), Chevron (CVX) and BP (BP) all beat consensus expectations. Their earnings reports showed levels of revenues and profits that suggest the industry is back to normal. Most recently, Shell (RDS.A) reported its net profits rose 50% in the third quarter!
But is it all for naught? Is OPEC going to disappoint them?
No.
But they will “disappoint” traders.
There is plenty of uncertainty in OPEC’s ongoing agreement to keep production capped. Like whether or not all members will comply in a given month, for instance.
But it’s almost certain OPEC will do whatever it takes to keep the agreement alive.
If not for the sake of Big Oil, then at least for the sake of the regional financial system and its collective influence in global economics.
Bloomberg just reported that Bahrain has approached Saudi Arabia, the United Arab Emirates and maybe even Kuwait about getting some money to shore up its foreign currency reserves. These countries are each members of the Gulf Cooperation Council (GCC). With this relationship in mind, Bloomberg considers Bahrain’s relatively small economy “too big to fail.”
Hmmm …
A lack of reserves indicates Bahrain simply isn’t bringing in enough oil revenues with the price of oil where it is.