Analysts Doubt OPEC’s Claims on Production Cuts
And now we get to see one of the on-going problem with any cartel: chiselling. Chiselling is where members of the cartel fail to adhere to the production/pricing agreements to try and increase their profit margin.
‘If the organization reverts to type and overproduces, prices will continue falling through the fourth quarter and into the first,’ Simon Wardell, an oil analyst with Global Insight, said Friday in a news release.
‘What should be expected is something of a compromise, an actual cut of approximately 800,000 barrels per day. This will help to solidify prices, but given current inventory levels the draw-down will be slow. The wild card is how severe the northern hemisphere winter is. A mild winter will put more pressure on OPEC to cut again when they meet in December.’
Of course Saudi Arabia acts as the swing producer and also as an enforcer. When it feels that chiselling is out of hand it can ramp up production and drive the price down considerably. This hurts the other members inducing them to stick to production agreements. The problem is that by all accounts Saudi Arabia is near its production peak which severly limits its ability to punish “defectors”.