Oil: Cut in production is the only proper decision to preserve stability - Rabobank

Stefan Koopman, Market Economist at Rabobank, suggests that freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.

Key Quotes

“Two weeks ago, when the OPEC reached a tentative agreement to curb production, it invited non- OPEC members like Russia to join the cuts. It would then seem clear that the Russian government preferred to have OPEC do much of the heavy lifting and then free ride on the ensuing price increase, rather than having to freeze or cut oil output itself. However, oil prices rallied yesterday on news that Russia would actually back such an accord. In fact, it was Putin himself who said at the World Energy Congress in Istanbul that “a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market”. Even though this is easier said than done, especially for Russia, the terms should ultimately be put into writing at the November summit of OPEC.

Whether this is a serious long-term commitment to or a temporary diversion to give the market another boost remains to be seen. The fact that hundreds and hundreds of papers are written about cheating, defecting and shirking from cartels and/or similar agreements should give rise to a healthy dose of scepticism. Despite that, Brent crude oil rose more than 2% and is now trading at USD 53/bbl.”