Congratulations To OPEC

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Originally published on Lenz Blog.
By Karl-Friedrich Lenz

This time it has achieved an agreement with non-OPEC producers which is supposed to slash another 558,000 barrels per day in oil production. That’s the first time such an agreement has been done since 2001.

My comment below is a copy of the comment I made about the OPEC agreement of cutting its production by 1.2 million barrels a day about a week ago.

This shows that OPEC still has some power to influence market prices.

On the other hand, it and the other producers of oil have still a long way to go.

In 1990, which is the reference year for EU CO2 reduction targets, world oil production was at 60.4 million barrels a day. In 2015, that number has increased to 79,9 million (numbers from indexmundi).

A reduction of 20% compared to 1990 would mean a target of 48.3 million barrels a day, or a reduction of 31.6 million, which is close to 40% from 2015 levels.

The reduction decided by OPEC on Wednesday adds up to 1.2 million a day. Add the 0.55 million barrels of the new agreement, and we are talking about 1.75 million. That’s nice, but much more than one order of magnitude less than needed even to achieve the EU 2020 target.

I leave it as an exercise for the reader to figure out what would happen to the price if all oil producers (including, but not limited to OPEC) would decide to aim for such a reduction until 2020.

Reprinted with permission.

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