Production Hits New Record Highs
After last month’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Algeria, there emerged a consensus for limiting production levels in order to bolster falling prices. However, new data shows that consensus fragmented even before it began.
Estimates of oil production submitted by Iraq and Venezuela, two key members of the oil cartel, conflict with estimates gathered by secondary sources. These discrepancies are causing some consternation in oil markets, namely because they leave several questions unanswered. (Source: “OPEC Faces Half-Million-Barrel Dispute With Members on Cuts,” Bloomberg, October 12, 2016.)
Advertisement
How much oil are OPEC countries really producing? How much more must they cut in order to drive oil prices higher? And are they supposed to wait until after non-OPEC countries slash their own production levels? There are serious disagreements about the answers to these questions.
According to the official OPEC numbers, the daily range should remain within 32.5 and 33.0 million barrels a day. Venezuela claimed it was pumping out 2.33 million of those barrels, while Iraq accounted for 4.78 million. But the secondary sources say these numbers are inflated by 565,000 barrels per day, meaning both countries produced far fewer barrels than was reported.
It is possible that the discrepancies are simply a matter of poor measurement. For instance, Venezuela’s oil minister, Eulogio Del Pino, said that secondary sources fell short because they neglected a new type of heavy crude that the country extracts from the Orinoco belt. (Source: Ibid.)
Whatever the reason, investors are clearly unhappy with this much uncertainty surrounding oil prices. By their reckoning, an OPEC agreement to cut production should have led to a slowdown in supply, which in turn would have led to an increase in prices.
But the devil is in the details. OPEC will meet on November 30 to discuss how the cuts will be implemented. Until that time, however, the chaotic nature of the deal may have soured the general appetite for oil. WTI crude was down 1.12% at the time of writing.
