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These Are The Winners And Losers Of The OPEC Deal

Friday, December 2, 2016 4:25
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(Before It's News)

From ""
target="_blank">Julianne Geiger
: It’s no secret I’ve been one
of the consistent naysayers about the OEPC deal. I was confident a
deal wouldn’t be had, and that if they did manage to reach a
deal—which seemed an impossibility given Iran/Saudi relations—it
would have little to no effect on the supply glut. "more-154134">

I was wrong on one account—they did manage to solidify a

It’s important to note before we look at the cold, hard facts of
the deal specifics that I’m a proponent of letting markets correct
themselves, and as such, I found it disturbing that the world was
expectant that OPEC needed to solve the world’s oil supply glut by
essentially manipulating oil prices through a controlled production
cut, but nonetheless, all eyes were on OPEC. “Solve the supply
glut!” the world seemed to scream. This perplexed me.

What was also fascinating about the deal, which began in April
and mercifully concluded yesterday, was the carefully planned and
constant rhetoric, “leaks” from OPEC officials to the media,
Russia’s personality-disordered flip-floppy comments about their
willingness to join OPEC in cutting production, their efforts to
ramp up production, and their apparent disagreement between
Russia’s oil ministers and Putin himself. Markets went up and down
depending on the headlines of the day, which were duplicitous and
vague, and could be—and were—interpreted any number of ways.
Markets see-sawed in response, and I’m sure many an investor
reveled in the ensuing volatility.

Of course, no one cares what I think, and no one should care
what the OPEC jawboning is from this point onward. Less talk, more
action. And yesterday, they acted. Who knew? I will humbly eat my
just portion of crow, although I may be eating it again in due
time, because I still think it’s an extremely fast-moving shell
game, with desperate countries who have almost their entire well
being tied up in oil willing to do whatever needs to be done to
hold their head above water—everything, that is, except to cut

But much more important than what I think, or what OPEC members
or Russia have to say about the matter, is the fact that there are
numbers now. There are actual production figures, actual cut
figures by country, and actual timeframes—today, we have details.
What do these numbers mean, without the commentary or spin?

Let’s look at where OPEC was with production when the talks
began at the April 17 meeting in Doha—a meeting that ended without
resolution. First, the spot price for ""
target="_blank">Brent was $41.32
. The supply glut was looming
large, and the markets were unhappy. The talks at that time, like
this time, were aimed at a production cut—but it failed. Here’s
what they were producing on average in the first quarter 2016, the
quarter leading up to the Doha meeting when everyone was panicking
about the glut and crying over the low prices.

On average in Q1 2016, per secondary sources, OPEC was producing
target="_blank">32.5 million barrels per day
. A couple of weeks
later, they met to discuss a cut. They failed—or so everyone
thought. In the months that followed, whilst jawboning and
posturing relentlessly about how they would make it happen, they
ramped up production (collectively), to 33.6 million barrels per
day. Then yesterday, they agreed to “cut” this figure for
production to… wait for it… ""
target="_blank">32.5 million barrels per day
—exactly where they
were before Doha, when everyone was calling for OPEC to cut.
Brilliant move on OPEC’s part.

The markets cheered! Prices rose! Brent spot prices today, with
only a promise of a return to previously unacceptable production
levels a month from now, is $50.47 per barrel. That’s a remarkable
increase for steady-as-she-goes production—almost $9 per barrel!
Not to mention that the deal only holds production at this level—a
level that was far too high in April—for six months.

The numbers don’t lie, and what really happened was nothing. We
are right back where we started. OPEC is producing exactly what
they were when everyone was badgering them to slow their roll. But
now the narrative has changed. The bar or expectation has changed
over the last few months, and now everyone is suddenly pacified
with a return to pre-Doha levels. OPEC did what they needed to do:
change the sentiment, not the fundamentals.

Now, for individual OPEC members, the distribution of the cuts
is interesting. Saudi Arabia, who was taking a hardline throughout
the whole process, said repeatedly that they wouldn’t bear the
brunt of the cuts unless Iran joined, is seemingly taking the brunt
of the cuts if you were to match the figures from yesterday to
October production. But that’s not the case if you look at pre-Doha
figures. In Q1 2016, Saudi Arabia was producing 10.147 million
barrels per day. The cut agreed to would have them cut back to
10.058 million barrels per day, or a 0.9 percent cut. So while
Saudi Arabia is one of the members to cut (although collectively
it’s not really a “cut”), they are indeed cutting a small
percentage. But since this is a zero sum game, another member must
be ramping up. Which lucky countries get this distinction? Let’s
see what the numbers say about which countries benefitted from the
Doha meeting failure:

"" />

The biggest winners just so happen to be some of the biggest
producers, with UAE, Iraq, and Iran—three of the four largest OPEC
producers—actually increasing production from the pre-Doha era.
Win. Indonesia, although they are operating outside of OPEC now
with a frozen OPEC membership, are producing more than pre-Doha
levels as well, at 722,000 barrels per day. Win. Libya and Nigeria
are also exempt from the cuts and will be ramping up as they are
able. Win.

Meanwhile, Venezuela, who has been one of the OPEC cut’s loudest
champions, is actually taking a huge 13 percent cut, as is
tiny-producer Gabon. Qatar is also taking a hefty cut at over 7

So while the overall OPEC production figures will not change
from pre-Doha to now, the distribution of production within the
group is shifting.

Regardless of this internal shakeup, before we get too excited
about the production cuts from yesterday, it should be noted that
this meeting was the same exact result that came out of the failed
Doha meeting—production is stagnate. No cuts have been proposed or
agreed to. But while Doha was viewed as a failure, yesterday’s
meeting in Vienna is viewed as a success. And in some ways, I guess
you can say it was. Success in pulling up markets, despite the
supply fundamentals staying the same.

The United States Oil Fund LP ETF ( "" target=
) fell $0.08 (-0.71%) to
$11.25 per share in premarket trading Friday. Year-to-date, the
largest ETF tied to crude oil prices has gained 3%.

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