First and foremost, we will have to hand some credit to the OPEC members, who could set aside their differences and agree to some kind of an arrangement to pop up the oil price. OPEC producers agreed that that would put a ceiling over OPEC production and keep the range between 32.5 million barrels to 33 million barrels. The deal announcement sparked a 6 percent rally in oil price, but after that, it has really struggled to gain further grounds, instead gave up some of it; Probably, rightly so. Lots of hurdles still remain that are creating doubts in the market on the success of the deal.

• Firstly, the deal is too ambitious. If Iran maintains its stance to increase production to pre-sanction levels that would mean a production cut for the rest of the OPEC between 0.8-1.3 million barrels per day. That would be an annual cost around $15 billion.
• Secondly, some countries like Iraq, even if commits to a production cut, it is doubtful whether that can be executed given the fact that the production has been rising in Kurdish-controlled regions. So a cut in other parts would make the Iraq politically and vulnerable.
• Thirdly, Saudi Arabia joining a cut necessarily means that Saudi plans to out produce and push shale oil producers out of the market have essentially failed, even if not entirely. That essentially means that swing producers like shale oil companies would continue to keep a cap on oil price.

There other issues like quotas, and policing we have discussed in the past articles. Nevertheless, we expect oil price to remain relatively upbeat especially due to the surprise that was associated with the deal.