Oil Traders Fail to See the Bigger OPEC Picture

Don’t be fooled by today’s market reaction: OPEC’s widely anticipated decision in Vienna today to extend the production cuts that were agreed to back in November 2016 should prove bullish for crude oil prices. Traders may be unimpressed, pushing prices down more than 5 percent to below $49 a barrel in New York, but OPEC’s gradual expansion and broader coordination with non-member countries is clearly giving the group more leverage in global crude oil markets.

The cartel, together with Russia and other non-members, agreed to rollover their agreement for nine more months after last year's deal failed to eliminate the global inventory overhang. So why am I bullish? Consider that the 24 countries that signed on to the production agreement today produce around 55 percent of global crude oil. And there has been strong monitoring and compliance following that November agreement, also reached in Vienna. This compliance and coordination is likely to pay off in the form of higher oil prices.