Tullow Oil UK (TUWOY)

[geodan]

JSC, http://seekingalpha.com/article/4028486-oil-last-time-opec-cut-production

today oil is down, the long term is explained above and below, OPEC does make a difference on oil price, and below another good article:

Summary

Parties to the OPEC agreement are incentivized to follow-it, increasing the likelihood oil supplies will rebalance.

For a majority of the producers, anticipated $55-$60/barrel oil prices still insufficient.

Agreement is merely first step to increase oil prices significantly higher.

For us, it's important to remember a key idea in the prelude leading up to the OPEC agreement and its aftermath, and that is this: Self-interest will broker the deal, and self-interest will enforce it.

What we mean is that all of the players are incentivized to force oil prices higher, and the mutually shared pain of minor cuts only enhances and reinforces the collective benefits. Cut a small amount now, and reap much greater rewards later. Net-net, a small production decrease (in words or deeds) leads to overall higher revenues.

Just look at Iraq. Up until the last minute of the ministerial meetings on Wednesday, the country's representatives still refused to cut, and continued to hold the untenable position that self-reported figures should be used as the baseline for any production cuts. Only after all OPEC members had agreed to use far more reliable and verifiable secondary source figures did Iraq begin to capitulate that point. Moreover, once Iraq noticed on Wednesday that the oil markets were beginning to move up at the signs of a deal was more likely, they agree to join in the cuts. Bloomberg states:

Iraq's assent would only come hours into the discussion, when oil prices soared in response to rumors of a deal. Oil Minister Jabbar al-Luaibi stepped outside the room and called his prime minister. He returned with consent to Iraq's first OPEC production limit since 1998.

And why wouldn't Iraq agree? Any lost production was already more than compensated for by the higher oil price even before OPEC had agreed.

Compliance

And so it goes, as we now wait for January when the agreement takes affect, self-interest will not doubt continue to play a key role. Of the 1.8M bpd cut, arguably two parties are the most important, Russia and Saudi Arabia. With Saudi Arabia comes along three strong supporters, the UAE, Qatar and Kuwait.

Country

Production Cut ('000 bpd)

Saudi Arabia

486

Kuwait

131

UAE

139

Qatar

30

Russia

300

Total

1,086

Total Cut

1,800

% of Total

60%