Once again the focus of the investors has returned towards the OPEC deal that was informally agreed in September by the members and well expected to be ratified in November. We have discussed some of the recent issues that brought it back in attention; production level dispute. Iran, Iraq, and Venezuela have protested against the OPEC secretariat’s measurement of the level of production. According to them, secretariat’s measures fall short of the actual production by 0.3, 0.32, and 0.25 million barrels per day respectively.

We have iterated many a time that agreeing on the levels of production and more importantly policing would be some of the key difficulties in the deal. However, in this piece we are not to discuss the hindrances but point to our readers to truly appreciate what has been achieved by OPEC so far.

·         Last year, many were considering OPEC as a dead organization but in September this year, members could set aside their differences and could agree to a deal that provides special provisions for countries like Iran, Libya and Nigeria.

We suspect that OPEC may not be able to agree on the stipulated production level and increase it, but, that would matter only in the short run. The most important component of the deal would be the time commitment.

·         This could act as a production framework for years to come. The longer is the duration commitment, the stronger would be the impact on the price. We suspect that this commitment framework would last more than a decade. However, it is important to recognize the biggest threat to this framework and that is geopolitics.

WTI is currently trading at $50.8 per barrel and we have forecasted a price of $68 per barrel.