More on the oil oversupply and OPEC’s lost swing production dominance

Bloomberg oil analyst Javier Blas reported earlier today that Saudi Arabia has told OPEC that it lifted oil production in February, despite the ongoing OPEC production cut agreement with Russia.

Source: Twitter

In essence, the Saudis have rolled back approximately one-third of the original production cut that they just agreed to in November.

Why this matters: The Saudis are supposed to be the world’s swing producers of oil. It was the Saudis who started the rout in oil that took us below $30 a barrel earlier this decade when they ramped up production. The fact that they are incapable or unwilling to maintain OPEC’s agreed-to production cut does not bode well for the price of oil.

At current prices, there is a glut of oil production, particularly in the US, where shale producers are ramping up rig counts. One must question whether the Saudis can control this and whether the OPEC agreement with Russia will last.

Canada will be particularly hard hit by these events because losses from the oil patch are expected to continue, even if we achieve an average oil price of $55 a barrel in 2017. Profits in Canada may not return to 2010 levels for another 4 years, given the situation.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.