OPEC members lack the self discipline to live up to their talk of production cuts

Fuel Fix:
Oil retreated from a 16-month high after OPEC pumped a record amount of crude in November.

Crude dropped 1.7 percent in New York after rising 15 percent over the previous four sessions. OPEC boosted production to 34.16 million barrels a day last month, according to a Bloomberg News survey. Attention is shifting to which non-OPEC producers will join Russia in reducing output when they meet in Vienna on Saturday. OPEC is hoping they will cut another 300,000 barrels a day beyond the 300,000 already promised by Russia.

Oil topped $50 a barrel after the Organization of Petroleum Exporting Countries agreed Wednesday to trim the group’s output by 1.2 million barrels a day starting in January to stem a supply glut and buoy prices. Russia — which isn’t part of the bloc — pledged a reduction of as much as 300,000 barrels.

“There are two things moving us lower, the first being the rise in OPEC production,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. “There’s also skepticism about the meeting next weekend. They are going to be hard-pressed to squeeze 300,000 barrels from this crew.”

West Texas Intermediate for January delivery dropped 86 cents to settle at $50.93 a barrel on the New York Mercantile Exchange. The contract rose 0.2 percent to $51.79 on Monday, the highest close since July 2015. Total volume traded was about 11 percent above the 100-day average.
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Some analysts are more optimistic that the price will hold and even rise.  That might happen if the Trump administration reimposes sanctions on Iran.  That seems possible especially if Iran has an irrational reaction to the legislation authorizing future sanctions if it does not comply with the nuke deal.

The proposed Russian cuts are something of a mirage since they barely cover its increased production in recent months.  Must of this talk looks more like market manipulation by jawboning rather than a demonstration of the kind of voluntary restraint needed to balance the supply with demand.

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