After years of negotiations, OPEC members have finally reached an agreement. It has still to be signed on November 30th but is already a new step towards more supportive oil prices.

The deal consists in reducing OPEC oil production to 32.5-33 million barrels per day (mb/d) from its current 33.3 mb/d. In fact, this deal is essentially based on an agreement between Iran and Saudi Arabia. Iran is targeting an oil production level of 4 mb/d, its pre-sanctions level. It reached 3.6 mb/d and could now agree to a freeze as it is very close to its full potential production level. Besides, Saudi Arabia has agreed to decrease its production, which would bring it back to pre-summer levels.

The deal could lead to a global balance between supply and demand by mid-2017. As US production has stopped decreasing and should remain stable, based on the most recent EIA forecast, the OPEC freeze should allow rising demand to converge faster towards global supply.

However, risk persists regarding execution of the deal. The formal agreement has to be signed at the November 30th meeting. Quotas by countries should be re-established and we already note some countries contesting their current production levels. Russia has also remained muted and has to take part in the freeze/cut.

This agreement should support oil prices as selling temptations could fade, and therefore stabilize above USD50/b, having remained between USD40 and 50 for some months. To benefit from this increase, we prefer commodity currencies such as the NOK (Norwegian krona), which is particularly attractive compared to the Swiss franc. The correlation with the oil price is high and the potential is interesting, as technical indicators are encouraging.

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