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Oil Exporters Nearly Back to Square One on Deal -- Heard on the Street

26 Mar 2017 1:25 pm
By Spencer Jakab 

You don't need a fancy degree in petroleum engineering to figure out what has been weighing on oil prices -- grade school math will do the trick.

U.S. benchmark prices rallied from around $47 a barrel before the late November meeting of oil exporters to more than $54 a month ago on two perceived successes: First, Saudi Arabia and Iran, rivals in the Organization of the Petroleum Exporting Countries, managed to make a compromise while others, notably Russia, pitched in. Second, compliance within OPEC is surprisingly good.

But if one subtracts the number of barrels taken off the market since the November meeting and adds back growth in output from the U.S. and elsewhere, the market is hardly being squeezed. Prices have nearly fallen back to their pre-agreement level.

Russia's oil production is down by a little over 150,000 barrels a day since November, about half of the amount it agreed to cut by June. But it set the starting bar as high as possible, at a post-Soviet record for output. A year ago Russian output was around 150,000 barrels a day lower than today, or right around the level it has pledged to reach as part of the agreement.

Meanwhile, U.S. oil output is rising rapidly, led by shale producers that responded to last year's price recovery. Production most recently was about 440,000 barrels a day higher than in mid-November. Meanwhile, Nigeria and Libya, OPEC members exempted from cuts, also have seen output rebound.

By the time the agreement's renewal is debated at OPEC's annual meeting in May, the celebratory mood may have shifted to a debate over more and deeper cuts.

Write to Spencer Jakab at spencer.jakab@wsj.com

(END) Dow Jones Newswires

March 26, 2017 09:25 ET (13:25 GMT)

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