After agreeing to cut production by a significant amount following round-the-clock talks, the initial optimism proved immense, with oil prices rallying on the announcement. Oil prices continued to climb in early Asian trade, but as traders digested the news, those gains were pared. Market participants became increasingly cautious about the details of the deal and the extent to which it would be imposed, given the history of OPEC flouting its own production quotas. With no enforcement mechanism in place, it will be hard to prevent cheating. Furthermore, the deal has not been ratified yet and will not be approved until the November OPEC meeting, meaning that oversupply will persist over the near-term. Considering Iraq is already questioning how OPEC is calculating output and gaps between members remain, the deal still has ample room to fall apart.
Can OPEC Live Up to its Promise?
Daily Analysis - 29/09/2016