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Oil in Global Economy Series: Too short a deal

Last November OPEC members met in Vienna and finalized a production cut deal, followed by an N-OPEC meeting in December for another production cut deal, which would together wipe out as much as 1.758 million barrels per day of supply from the global oil market, beginning this month. The deal is valid until June, after which it would be reviewed again.

While the news is coming out that participants are abiding by the deal, Saudi Arabia’s powerful oil minister Khalid al-Falih speaking at an industry event in Abu Dhabi said that the deal need not be extended beyond June. According to him, the deal would’ve full impact by the first half of 2017 and need not extend it beyond the agreed period, “Based on my judgment today it’s unlikely that we will need to continue …….demand will pick up in the summer and we want to make sure that the market is supplied well. We don’t want to create a shortage or squeeze.”

The oil price, despite its jump post-deal, has faced heavy selling pressure and struggled to make its way towards $60 per barrel and comments like these only make things worse for the bulls. WTI is currently trading at $53.2 per barrel and Brent at $56.5 per barrel.

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