OPEC agrees to production cuts

Fuel Fix:
The move took many by surprise.

OPEC members agreed Wednesday to a preliminary deal that will cut the cartel’s oil production for the first time in eight years, boosting hopes in Houston that crude prices will quickly climb above $50 a barrel and accelerate the industry’s nascent recovery.

RELATED: Winners and losers in OPEC’s plan to cut production

Crude prices jumped to nearly $48 a barrel on Thursday, a day after Mohammed Bin Saleh Al-Sada, president of the Organization of the Petroleum Exporting Countries and energy minister of Qatar, announced the deal in Algeria. If finalized at OPEC’s November meeting, the agreement would limit output from the cartel’s 14 countries to about 33 million barrels per day – a drop of roughly 750,000 barrels per day from what OPEC said it pumped in August.

RELATED: Oil prices jump on OPEC’s preliminary deal to cut production

If OPEC can make good on production cuts it could bring global supplies in line with demand by the end of the year, according to the International Energy Agency.
This appears to be a surrender to market reality and is a step back from the suicide economics that has been prevalent as the group tried to drive shale producers out of business.   The group had to come to terms with the fact that they were no longer the dominant supplier to the US market.

Whether they have the market discipline to keep the agreement they have reached is still an open question.

In the meantime, US shale producers have become more efficient, which means they will e profitable at lower price points.


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