In September member countries of OPEC surprised the global market by agreeing to a landmark deal that would limit the cartel’s production between 32.5 million barrels per day and 33 million barrels per day. As of October, the OPEC produced 33.8 million barrels. We have already discussed that this means that OPEC would have to cut 0.8 million barrels per day of oil production and as Iran, Libya, and Nigeria are exempted from the deal, other members would have to take a cut of 2 million barrels. While it is definitely commendable that member countries could set aside their differences and agree to a deal, the reality really looks grim.

However, this is not the only reason that would lead to the failure of the full implementation of the current OPEC deal. One of the other reasons is Russia, which played a crucial part in securing the deal. It is well expected that once a deal gets sealed, Russia would join in too by cutting its own production. But as of now, Russian production is moving up and hovering at the highest level since the Soviet era. Goldman Sachs has already forecasted that Russian oil production would reach 11.4 million barrels per day in 2017. Russia can keep the oil cash flow positive as long as price stays above $10 per barrel. In addition to that, production is going up in most of the countries within OPEC. As of latest, in October alone, supply from Libya and Nigeria have increased by 800,000 barrels per day.

To add to the misery, any production cut from OPEC could easily be replaced by increased production from shale oil companies in the United States as their efficiency continues to improve. OPEC members are aware of these and it is not likely for them to ignore these facts and just get on with the deal.

WTI, which is currently trading at $46.1 per barrel is likely to keep facing the downside pressure.