By Bob Adelmann
The global price of crude oil jumped more than 11 percent since OPEC announced on Wednesday its first agreement to limit production by the cartel since 2008. There are many moving parts to the agreement — perhaps too many. . . .
The “large inventory overhang” is estimated to approach 500 million barrels. If the OPEC agreement does in fact cut production so that the supply/demand equation goes negative by, say, one million barrels of production a day, it would take 500 days to absorb that overhang.
But Mr. Trump might have something to say about that assumption. Becoming known as a president who intends to keep his promises, his $1 trillion program to rebuild the nation’s infrastructure, if funded by a friendly House and Senate, would drive demand for crude and its attendant refined products higher.
In all, then, the combination of OPEC’s history of cartel failure, improving technology in the nation’s oil industry (driving breakeven points ever lower), the discovery of vast new reserves in Texas, and the belief that Trump’s administration will open federal lands to private energy development plus its hoped-for intention to allow oil pipeline construction projects to be completed, all work together to negate the efforts of OPEC to drive oil prices higher. The International Energy Agency put it well: “This means that 2017 could be another year of relentless global supply growth similar to that seen in 2016.”
What that means, of course, is that OPEC continues down its path to irrelevancy . . .