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What exactly did OPEC agree to in Algiers today?

Oil rallied big time today on news that OPEC countries have agreed to reimpose a production ceiling and to drop production to 32.5  to 33 million barrels a day. At the low end of the range that would amount to a decrease in production of 750,000 barrels a day from what OPEC says it pumped in August. U.S. crude benchmark West Texas Intermediate is up 4.48% to $46.67 a barrel today and the Brent benchmark is up 5.11% to $48.32 a barrel.

But this is a typical OPEC “agreement.” There are no details about who will reduce production by how much and OPEC sources have said that no details will be forthcoming until the group’s regular November 30 meeting in Vienna. That makes me suspect that OPEC hasn’t released any details because there aren’t any details to release and that the group is hoping that it can use the next two months to iron out the disagreements about who will cap production where and who will actually reduce production.

In other words, we got an announcement of an agreement today not because there is an actual agreement but because OPEC feared, rightly in my opinion, that the failure to announce an agreement in Algiers would hit oil prices hard again.

The wonderful thing about an OPEC announcement like this is that oil traders can’t afford to simply ignore it as skeptical as they might be. After all, OPEC might be serious and there might actually be a deal with details in Vienna.

Of course, the question of what a deal that so far doesn’t include Russia would be worth is still a big uncertainty. Russia pumped a post-Soviet record 11.1 million barrels a day in September, according to preliminary estimates. That would be an increase of 400,000 barrels a day from August’s record production levels. Russian production at the September level plus an increase in Iranian production of 500,000 barrels a day as Iran is known to have proposed would completely wipe out the proposed (maybe) 750,000 barrels a day reduction “announced” today.

Without production restraint from Iran and Russia a 750,000 drop in production from OPEC would not be enough to reduce a supply excess forecast to stretch deep into 2017. And the OPEC target assumes that nobody cheats on whatever production quotas might be agreed in Vienna. (OPEC members always cheat.)

I think the market’s very positive reaction today comes from 1) any deal, even one without any details, is better than no deal, and 2) the announcement seems to suggest that the Saudis are once again willing to assume the task of managing the oil market. That would be a huge plus to the market, traders believe, after a period with no production quotas at all from OPEC.

In other oil news today, the U.S. Energy Information Administration announced that U.S. oil inventories dropped by 1.882 million barrels in the week. Oil industry analysts had projected an increase of 3 million barrels. Gasoline inventories grew by 2.03 million barrels. Analysts had expiated a much smaller increase of 0.18 million barrels.