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OPEC’s Tissue Paper Agreement

Dec. 2, 2016
by Bob Adelmann

Wednesday’s OPEC “agreement” was cheered by many who failed to consider how wrong some of the assumptions are in it, as well as the towering evidence that it will have negligible impact on the price of crude oil even if it is adhered to by the cartel.

Wrote Amrita Sen from Energy Aspects: “OPEC has proved to the skeptics that it is not dead. The move will speed up rebalancing and erosion of the global oil glut.” Intoned Adam Longson, a commodity analyst with Morgan Stanley: “OPEC’s 32.5 million barrels a day production agreement … exceeds market expectations.” Giving assent to the cartel’s track record of violating past such agreements, Scott Darling, the head of Asia-Pacific oil and gas research at JPMorgan is willing to overlook it anyway: “While we acknowledge that OPEC’s track record of delivering on production cuts has historically been poor, on a net basis we expect this to tighten crude markets.”

Gordon Gray, global head of oil and gas energy research at financial giant NSBC, expressed his confidence that Wednesday’s agreement would hold:

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