The projected continuing surge in oil production from producers unencumbered by the OPEC led production cuts is not the extent of the challenges facing the efforts to bring about a consistent rise in oil prices. Their own report forecasts a drop in the need for OPECs crude this year by 300,000 bpd. Assuming that forecast, which may be overly optimistic, proves accurate the demand for the cartels oil will be 31.92 million bpd, at that level inventories will remain largely unchanged.

Russian Oil Headed For U.S.

According to OPEC itself at the end of the first quarter of 2017 the excess inventory in developed countries of the OCED stands at 276 million barrels. There needs to be a dramatic drop in production in order to remove this high level of inventory in stock. Looking at the planned production cuts and the projected rise from other suppliers, these numbers simply don’t bear out the assumption that OPEC will be able to wear away the excess inventory on the market. Unfortunately for the cartel and oil bulls, it appears that the impact of this new production cut will be similar to the impact from the last production cut, in other words negligible.

If this were simply a matter of increased global supply it is possible OPEC would be able to eventually bring down inventory levels by increasing the level or duration of production cuts. This might also be accomplished by finding a way to convince the OPEC members who are not currently engaged in supply cuts to participate for the common good of the group.

This is unlikely given that the economies of Libya, Iran and Nigeria (not even discussing the geopolitical implications of current event s in Venezuela) have suffered greatly in recent years and are unlikely to join in a cut. However, the problems don’t end with the supply side of the equation, the specter of shrinking demand looms over oil markets as well.