OPEC production cuts could benefit New Mexico

The deal would end the two-year crude-oil rout and stabilize the oil market. “The OPEC decision is bullish for first half of 2017 and bearish for the second half because higher prices will bring back USA oil faster to the market”.

The size of the promised cut, though pegged at 1.2 million bpd by the ministers and seized as the headline figure by the world media, is more likely somewhere between 960,000 bpd and 1.14 million bpd, depending on the starting point, or the “baseline”, in OPEC’s parlance.

Non-OPEC producer Russian Federation confirmed on Tuesday it would not attend the OPEC gathering, but added that a meeting between the group and non-affiliated producers at a later stage was possible.

But Angola’s reference level was backdated to September 2016 to take account of scheduled maintenance which lowered output in October. It said its cut was contingent on the non-OPEC producers doing their part, but that could be seen as posturing.

The Saudis had always been hesitant to shoulder the lion’s share of a cut, while Iran had resisted reducing its own production. The government has cut salaries and benefits, raised energy prices, and is seeking other sources of non-oil revenue, but popular discontent with these austerity measures is rising.

While OPEC members initially bickered among themselves on who needed to lower its output and by how much, they recently had to get more serious on freezing output as their national budgets got increasingly strained. If compliance with the deal is uncertain, however, it could erase some of the optimism supporting the current rally. However, the summit was canceled after Saudi Arabia, representing OPEC, decided not to participate in the talks.

The decision to freeze its membership was made two days ago just as it did in 2009, as dwindling production meant Indonesia had become a net importer which was against Opec’s statute for full membership.

And OPEC President Mohammed Bin Saleh Al-Sada said non-OPEC nations are expected to pare an additional 600,000 barrels a day off their production. It involves significant reductions by heavyweights including Saudi Arabia, the group’s most powerful member and de facto leader of the cartel. It seeks to deliver thrice the returns of the S&P GSCI Crude Oil Index Excess Return and has attracted $1.2 billion in its asset base.

“We’re moving higher on optimism that the cut, together with expected growth in global demand, will bring the market into balance”, said Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut.

Drangmeister and others in the industry have expressed guarded optimism, however, as OPEC has announced production cuts before and not followed through.

The deal will be partially offset by increases in production from Nigeria and Libya, assuming that they can improve security around their oil installations.

Intense negotiations would be needed on Wednesday to cement a deal, Goldman Sachs (GS.N) analysts said.