The OPEC countries reached a deal to cut production by 1.2 million barrels per day effective from January next year, hoping that such a move would stabilize the oil market and increase the overall revenue by increasing the price.

We are using two reference price in our analysis - $47.7 per barrel of Brent crude and $45.5 per barrel. The first one is the average price of Brent crude in 2016 prior to the deal and the next one is price just before the deal. OPEC production cuts mean a loss of $57.2 or 54.6 million in revenue every day for the cartel. Now, the members would hope that price rises in such a way that they get more than compensated for the cuts.

Technically, no bigger move is required for the cartel to compensate for the move. Just a $2.5 per barrel sustainable increase from the reference point would be sufficient to compensate for the lost revenue. But without a substantial increase in the prices, the purpose of the deal would fail. It would be difficult to justify the very purpose of the deal if the price of crude oil fails to move higher by at least $10 per barrel. Without such an increase, the loss of potential market share would be difficult to justify.

Brent is currently trading at $54.1 per barrel.