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.
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.