OPEC Agrees on Cuts, Let the Infighting Begin

Energy

OPEC Reaches Cap Agreement- Oil Jumps 5%

Let the Infighting Commence

Reuters has reported that OPEC members have agreed to an output cap on production to be finalized at their November meeting if not sooner. But the details are not fleshed out and the execution date has not been set. Oil surged on the news as did the energy sector in stocks.

Reuters Headlines

OPEC REACHES DEAL TO LIMIT OIL PRODUCTION, EXECUTION IN NOV - OPEC SOURCE
OPEC AGREES TO LIMIT OIL PRODUCTION TO 32.5 MLN BPD - TWO OPEC SOURCES
OPEC REACHES DEAL TO LIMIT OIL PRODUCTION, EXECUTION IN NOV - OPEC SOURCE
OPEC DISCUSSING CUTS OF 200,000 TO 700,000 BARRELS A DAY- this is an agreement?

As first predicted below in this post before the infighting even began, Iran and Iraq have already started complaining

UPDATE: Baghdad, We Have a Problem

Executing the Agreement Will Not Be Easy

OPEC members cap their own production in the next 2 months
Marketshare must be agreed upon first (Iran and Nigeria want more)
1. OPEC members not currently producing at capacity will be granted an exception
  - which is where the marketshare problems always start-vbl
OPEC reaches out to non-OPEC producers and ask for collaboration

UPDATE:OPEC TO SET UP COMMITTEE TO DECIDE LEVEL OF CUT FOR EACH MEMBER.

Meaning Iran and Nigeria will want larger marketshare, Saudi Arabia may not agree so easily
So is Saudi Arabia (Sunni) going to giveup marketshare for Iran (Shia)?-vbl

The Infighting Begins Already- 4:09PM ET

DEAL MEANS SOME COUNTRIES SHOULD DECREASE PRODUCTION: IRAN
IRAN SAYS IT WON'T HAVE TO FREEZE OUTPUT AS PART OF AGREEMENT
IRAQ REJECTS OPEC METHOD ON OUTPUT ESTIMATES

Reality Check

h/t Punter @chigrl

full story HERE

The details haven't been discussed, but that doesn't stop the HFT short covering rally

REUTERS | OPEC agreed on Wednesday to reduce its oil output to 32.5 million bpd from the current production levels of around 33.24 million bpd, two OPEC sources told Reuters.

The producing group will agree concrete levels of production by each country at its next formal meeting in November, the sources said.

One source also said that once production targets were reached, OPEC would reach out to non-OPEC producers for cooperation.

Oil Analyst QOTD

“Technically, I’m not sure how that whole thing will be implemented -- no one is sure.”

Production Cap is Near All Time Highs

Production is being capped at practically all time highs
Looking at the chart, and the stated agreement of a 32.5MM BPD cap down from the current output of 33.70 BPD, this is fundamentally almost a non-event

An OPEC Cap is Not an Oil Cap

OPEC is 34% of Global production
The other 66% will be asked to comply
The 66% will agree in principal but will not comply.

Historically When These Agreements Fail

The 66% thank OPEC for cutting back production and pump more
OPEC members get angry
OPEC members violate the agreement (Iran, Nigeria)
Saudi Arabia violates the agreement last
Oil dumps and we start over (see 1999)

Bottom Line

For now, OPEC has gotten what it wanted: A buying frenzy that makes everyone happy except the shorts who overloaded thinking no agreement will be made.