At the meeting in Algeria last week, some sort of agreement was reached, to at least at freeze or maybe even curtail production. OPEC's been producing about 33 to 33.25 million barrels of crude a day. They say they're going to freeze production at something closer to 32.5 million barrels of crude per day.
If history has taught us anything about OPEC, it's that OPEC cheats. Every one of its members cheat. They cheat when they need to. They cheat when they don't need to. They cheat when it's good for them; they cheat when it's bad for them. They'll cheat again.
What I find interesting is that everybody got excited because Russia said it was going to perhaps sign on with a production freeze. And yet [Tuesday] morning, Mr. Sechin, the president of Rosneft, Russia's largest crude oil producer, asked, "Why should I curtail production? I'm going to continue to increase production."
He is brutally aware that $50 oil plus the $4 contango for one-year forward futures gives you $54. Every fracker in the United States is wonderfully profitable at $50-55 per barrel.
If you can have $55 for the one-year forward in crude, every banker who's lent any money to crude producers here in the United States is going to mandate that they get some hedges in place. Crude oil wells that have been drilled but capped are going to be brought on to production. It's going to be very difficult to push nearby WTI above $50 by more than a buck or two.
The rally in crude oil probably is going to very swiftly run its course.