Heres the thing about OPECs decision to maintain current levels of crude-oil production today: It really amounts to a production cut, but the market doesnt care.
The oil cartel for the fourth time this year maintained current production levels, pretty much as everyone expected. With one big caveat: OPEC honchos called for oil-producing states to comply with their output quotas after an alarming lack of discipline since the spring.
That is, OPEC announced total production cuts of 4.2 million barrels of oil a day late last year. For once, cartel members didnt cheat too much earlier in the year, and took about 80% of that oil off the market. That helped send crude from the $30s last Christmas back toward the $70 range.
And those higher prices, in turn, tempted oil producers to keep pumping. Compliance with the cut has fallen to somewhere between 58% (says the IEA) and 61% (says Bloomberg). That is par for the course, historically, for OPEC. Which means theres a lot of oil sloshing around that shouldnt be.
OPEC Secretary General Abdalla Salem el-Badri called for oil producers to get back to a 75% level of compliance, the WSJ reports. Saudi Arabian Oil Minister Ali Al Naimi went further, introducing the novel idea of 100% compliance with agreed-upon production cuts.
They arent really trifling figures. Getting back to 75% compliance would mean taking about 1 million barrels per day off the world market, right as China and Japan are getting back on the oil wagon. Reaching 100% compliance would mean removing 1.7 million barrels per day from global markets.
If OPEC announced a production cut of 1 to 2 million barrels per day, oil markets would have a heart-clutching Oh, Elizabeth moment.
Yet they didnt. Crude futures in New York were up less than 0.5% in early-morning trading.
Which suggests that, for all the calls from OPEC heavyweights to improve the cartels compliance, nobody gives much credence anymore.
If demand in industrialized countries is as soft as OPEC suspects, the cartel might someday soon have to really announce a production cut it will partially comply with in order to protect the perfectly priced oil in the $70s.