OPEC takes another shot at limiting oil production

Bloomberg/Fuel Fix:

OPEC is near an agreement to cut production for the first time in eight years, sending oil prices surging on optimism a deal with start to drain record global inventories.

Under the terms being discussed by ministers in Vienna, the group would cut production by 1.4 million barrels a day, equivalent to about 1.5 percent of global production, according to a delegate. In addition, oil producers outside OPEC, including Russia, would contribute cuts of about 600,000 barrels a day, they said.

The outlines of the deal emerged as ministers on their way into the meeting struck a markedly more optimistic tone than in recent days, signaling the group’s three largest producers — Saudi Arabia, Iran and Iraq — have overcome differences on how to share the burden of cuts. It appears Iran will be able to raise production as it recovers from sanctions on its oil industry.

“I am very optimistic we’re going to come up with very fruitful results,” Iraqi Oil Minister Jabbar al-Luaibi said, before sitting down for the final ministerial meeting. “There will be a cut, yes, definitely.”

Benchmark Brent oil futures rose as much as 8.8 percent in London trading, the biggest gain since February, to $50.45 a barrel.

Following two years of low prices, the OPEC meeting has become a magnet for global finance, with hedge fund managers, institutional investors and top oil traders mingling with officials and ministers at the upmarket Hyatt, Ritz Carlton and Kempinski hotels in Vienna. Beyond oil, the OPEC gathering is now at the center of global macro trades from the Canadian dollar to Nigerian bonds to U.S. shale equities.
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I remain skeptical that  the OPEC producers, plus Russia have the market discipline to restrain production at a time when they all seem desperate to increase revenue.  There are still only a couple of OPEC producers that are profitable at the new benchmark price of around $50 a barrel.

They are also likely to see their share of the US market continue to shrink as Trump takes the cuffs off domestic US production.  It should also be noted that at $50 a barrel many of the wells in the Texas Permian Basin and other shale fields are profitable.