One Way to Profit From OPEC’s Pointless Agreement


Crude oil futures flipped between gains and losses Friday as market participants continued to weigh a tentative agreement to cut production among members of the Organization of the Petroleum Exporting Countries and as investors cashed in recent gains. For the quarter it fell around 1 percent.

Nigeria, Iran and Libya have said they are exempt from an agreement the Organization of Petroleum Exporting Countries announced on September 28 to cut supply, while Iraq has said it doesn’t accept OPEC’s estimates of its production levels.

Production by Saudi Arabia is also edging lower as the kingdom usually curbs its output in the winter months given lesser domestic demand for power generation.

OPEC’s unexpected agreement this week to trim production shows that the cartel still has the resolve to try to guide oil prices higher. It is hoped that Saudi-Arabia’s willingness to do a deal signals a new phase of relations between the two member states who have historically disagreed on oil policy.

“We should be strong in conveying this message, because we don’t have any new oil fields yet”, Wiratmaja said, declining to mention which member countries had insisted on raising their production quotas. Assuming this planned production cut is part of agreed cut, what is the effective production cut?

“This has been a momentous week”, said John Kilduff, a partner at Again Capital LLC, a NY hedge fund focused on energy. Riyadh’s current position is in stark contrast to earlier this year, when former oil minister Ali al-Naimi claimed the kingdom would survive even at $20 a barrel. “Now they will make seasonal adjustments to maximize revenue”.

This tentative deal sent the price of Brent crude soaring as much as 6.5 percent to a high of $48.96 a barrel on Wednesday, showing the value of surprising the market. It’s the highest close since August 23.

Specifically, Brent crude oil traded for $49.34 per barrel while West Texas Intermediate (WTI) rose to $47.89 a barrel.

Analysts at Goldman Sachs said higher crude prices will spur non-OPEC output, particularly USA shale oil. Oil demand is stably growing and spurring producers to increase their volumes, says Artem Kalinin. That tops the previous all-time high of 3.218 million lots set on January 28.

Gasoline pump prices have mirrored cheaper oil.

Energy producers worldwide surged following the OPEC deal. Worldwide, oil and natural-gas companies cut about 350,000 jobs since prices peaked in mid-2014, industry consultant Graves & Co. estimated in May. It gained 8 percent on the week, also the most in six weeks.

The Saudi oil policy has forced high-cost US producers to cut rigs from about 1,600 two years ago to just more than 400 today, resulting in a decline of about 900,000 barrels per day of output from American fields. In the past, Riyadh had said that it would reduce output to ease a global glut only if other member nations committed to the same.

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