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OPEC cuts: ‘It’s inevitable. Somebody’s going to cheat”

'It's inevitable': OPEC will cheat on output cuts, says analyst

‘It’s inevitable’: OPEC will cheat on output cuts, says analyst  

OPEC’s first oil output cuts since 2008 take effect next week, but analysts see little chance members of the producer group will stick to their quotas.

“It’s inevitable. Somebody’s going to cheat,” ClearView Energy Partners managing director Kevin Book told CNBC’s “Squawk Box” on Friday.

“You get until Jan. 21 to believe your hoped-for outcomes and then you converge with reality. Historically OPEC always blows past its targets,” he said, referring to the date the cartel’s monitoring committee first meets.

The Organization of the Petroleum Exporting Countries agreed last month to cut production by 1.2 million barrels per day in a bid to reduce huge crude stockpiles that have built up during a more than two-year price rout. Other producers committed to reducing output by a total of nearly 558,000 barrels a day, with about half of the cuts coming from Russia.

OPEC members do not exceed their quotas by much if one averages the cheating over time, but it will take a big cut this time around because inventory levels remain very high, said Book, who heads ClearView’s commodities research team.

He also dismissed the notion of “ROPEC” — coordinated action by OPEC and Russia — as a myth.

“We’ve been waiting to see this come through for decades. Is this going to be the time? Probably not this time either,” Book said.

Russians are unlikely to comply with OPEC deal: Strategist  

Russia is widely seen to have ignored its quota the last time it vowed to cut in 2001. Some analysts say Russian Energy Minister Alexander Novak’s statement on his country’s contribution to the current round leaves Moscow plenty of wiggle room in terms of when its producers will begin cutting, how much they will cut and their capability to cut.

“Energy Minister Novak, even yesterday, did sort of leave a get-out-of-jail-free clause by saying Russia would look at the cuts, but within technical parameters,” Macro-Advisory senior partner Chris Weafer told CNBC Europe after the deal was struck earlier this month.

“It’s possible that what the Russians are looking at is saying, well, we were planning to raise production by 300,000 barrels in the first half of next year. We now won’t do it. Q.E.D., that’s our contribution. We’ve seen that before.”

Oil price gains capped

Book predicted that pessimism will soon wash back into the market as crude supply levels remain high. But OPEC could begin talking up a second reduction in May as the six-month program of cuts expires, he added.

U.S. crude‘s rise above $50 a barrel allows more American drillers to make money, so price gains may be capped going forward, Book said. Analysts warn further gains would lead to more U.S. production and a subsequent price crash.

Don't expect a huge run up for oil in 2017: Kloza

Don’t expect a huge run up for oil in 2017: Kloza  

Stephen Schork, editor of The Schork Report, on Wednesday also told “Squawk Box” oil prices have likely topped out in the $53 to $55 a barrel range due to the threat of more U.S. supply coming back into the market. He too warned that OPEC supply will remain too high to balance the oversupplied market if the cartel only achieves 60 to 70 percent compliance with cuts.

Alex Dryden, global market strategist at JPMorgan, told CNBC he expects roughly 80 percent compliance.

Tom Kloza, global head of energy analysis at Oil Price Information Service, forecasts 70 percent compliance, but he told CNBC on Friday that would actually only equate to a cut of about 700,000 to 1 million barrels a day. That is because the cartel “plays some games with the numbers” and is reducing from abnormally high levels.

The oil price rally may have a little more room to run because markets typically see an influx of new money from investment funds at the start of the year, Kloza said. However, crude is “pretty fairly valued” for the next 12 or 24 months, he added.

Rising production in Libya, which is exempt from the OPEC cuts, as well as the United States and Brazil could upset a “Goldilocks scenario” for oil bulls in which the cartel delivers a high degree of compliance, ClipperData’s head of commodity research, Matt Smith, told “Squawk Box” on Tuesday.

OPEC and non-OPEC producers have begun notifying their customers of shipment cuts, lending some credence to their commitments.


13 Comments on "OPEC cuts: ‘It’s inevitable. Somebody’s going to cheat”"

  1. joe on Sat, 31st Dec 2016 9:33 am 

    Its not like cheating or not matters. The price hike is what they want. The ‘deal’ was to make OPEC look relevent, otherwise they should just end opec and be third world sh1tholes again. The fact they couldnt do a deal without Russia PROVES OPEC is finished.

  2. penury on Sat, 31st Dec 2016 9:54 am 

    I just love how these “articles” manage to work in just a little anti-Russia propaganda. I presume that most people think the statements are facts. HAHA

  3. shortonoil on Sat, 31st Dec 2016 2:12 pm 

    The reason that cuts won’t work is because the revenue increase from a price escalation resulting from the cuts will never compensate for the lost revenue from reduced sales volumes.

    For the ECON 101 types who can’t get their head wrapped around an entropy function, the demand curve is becoming increasingly inelastic. A change in supply now has very little impact on price. All that cutting production will produce is lost income.

    Welcome to the end of the oil age. Petroleum production is an energy function; always has been always will be (until it isn’t anymore).

  4. penury on Sat, 31st Dec 2016 2:53 pm 

    Short what you say makes sense and will therefore be ignored by the people who think that the only measure worth checking is the retail price of petroleum in the U.S.

  5. Boat on Sat, 31st Dec 2016 3:27 pm 

    Just the threat of cuts made the prices jump. You boys will never figure out how markets work.

  6. Davy on Sat, 31st Dec 2016 3:30 pm 

    What short says makes sense to a point. Markets are not completely rational especially in the short term. Prices are going to move on behavior as a factor just like depletion just with different expressions. Confidence is liquidity and this also drives production. These games of confidence have meaning but longer term there is only one game in town and here short is right. Time is running out so these confidence games are increasingly less effective. When is important. When are the markets going to be spent. How much longer can we manipulate physics and claim value?

  7. dave thompson on Sat, 31st Dec 2016 3:33 pm 

    Lets just say for S***s sake production levels go down enough to spike the price to $150 per bbl. Then every body starts pumping like crazy again and the price crashes. Don’t forget $150 per oil will crash the economy also.

  8. GregT on Sat, 31st Dec 2016 3:39 pm 

    “Just the threat of cuts made the prices jump. You boys will never figure out how markets work.”

    You’re exposing your level of stupidity again Boat.

  9. Boat on Sat, 31st Dec 2016 3:52 pm 


    Now it’s reported the US became a nat gas net exporter a few days in Sept as well as Nov. You Canadians must have small band width not to know this. Like Trumps small hands. Lol

  10. GregT on Sat, 31st Dec 2016 4:28 pm 

    “Now it’s reported the US became a nat gas net exporter a few days in Sept as well as Nov.”

    Does not change the undeniable fact that the US still remains a net importer of Nat Gas, and a rather large one at that.

    “Like Trumps small hands.”

    Your commander in chief Boat. Not mine.

  11. rockman on Sat, 31st Dec 2016 4:29 pm 

    Greg – Yep, the price of oil didn’t jump…the price being bid for 30 day future contracts jumped. And in a month someone will profit from that SPECULATION just as someone will loose money: either that bidder or the one covering that BET. Of course the broker handling the trade makes the same commission either way. Which, of course, is why the futures market was created in the first place. LOL.

  12. .5mt on Sun, 1st Jan 2017 4:50 am 

    Happy New Year Kooks!
    I trust the one called Beldar. We will consume mass quantities of this petroleum, with a side of water hose.

  13. Kenz300 on Sun, 1st Jan 2017 8:52 am 

    No more wars for oil.

    It is time to move away from fossil fuels.

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