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OPEC Won’t Reach a Deal

Goldman and others had predicted in 2014 that any effort by OPEC to curb supply would hardly amount to much — the U.S. shale industry can raise production at such pace and volumes that it would fill the gap.

OPEC shared this view, but then surprised the market in September 2016 by announcing their intention to cut supply.

Skepticism persisted. Most analysts surveyed by Bloomberg in November that year expected member countries to fail to reach an agreement. BP Plc said the mood in the market was “pessimistic.”

Yet on Nov. 30, the pact was finalized. The bigger surprise came 11 days later as a number of countries outside the group joined the deal, including former rival Russia. It had once been thought unfeasible this could ever happen.

OPEC Will Fail to Deliver

OPEC has a track record of backsliding on supply promises as the temptation to boost revenues leads members to cheat.

The latest initiative would go the same way, banks said. Morgan Stanley saw only a “small chance” the targets would be implemented, expecting the agreement to unravel in six months. JPMorgan predicted it would “collapse” by the end of 2017 and Commerzbank AG said OPEC would “over-promise and under-deliver.”

Yet the group implemented 95 per cent of the cuts it promised last year, and its allies delivered 82 per cent. OPEC’s compliance improved through the year and reached 129 per cent in December. Admittedly, unplanned losses in Venezuela and elsewhere helped, but the compliance rate is unheard of in OPEC’s history.