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Inside the Oil Deal
Market Keeps Moving to OPEC's Tune
What is being billed as a "new era" agreement between OPEC and non-OPEC producers has prompted both WTI and Brent to spike overnight. Both have been up over 4% as I write this, to levels not witnessed in the last year and a half.
Once the dust clears, however, essential elements of a sustainable deal are still before us. The overall volume to be cut will come in less than either the total mentioned in Vienna when OPEC announced the accord on November 30 or the number needed to reach the new lower production target often mentioned by the media, at least according to sources at Minenergo (the Russian Energy Ministry).
Now the new reality is not automatically a bad thing. To be sustainable, the Vienna Accord must be viewed as realistic both inside and outside the cartel. The "cut and cap" approach should provide for actual reductions from major producers while allowing others (Nigeria, Iran, and, probably as it plays out, Iraq) to remain at current lifting levels.
Meanwhile, indications are surfacing that non-OPEC cuts may not materialize in the numbers initially presented. This is even the case with the 300,000 barrels a day pledged by Russia. To continue reading this ECRG Intelligence Briefing click here: http://energycapitalresearchgroup.com/ecrg-intelligence/inside-the-oil-deal/
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