Baku, Azerbaijan, May 16
By Leman Zeynalova – Trend:
An extension of OPEC’s output cuts until the end of March 2018 should be more than enough to bring stocks down to their five-year average and push prices up, even if US output continues to pick up and OPEC’s compliance slips a bit, Tom Pugh, the economist at British economic research and consulting company Capital Economics, told Trend May 16.
He was commenting on the joint statement made recently by Saudi Arabia and Russia on the plans to propose the extension of the OPEC oil output cut deal by late March 2018.
“Presumably, the extension to the deal will require agreement by the rest of OPEC, especially Iran and Iraq which have been increasing output, and the other non-OPEC participants,” said Pugh. “However, most OPEC members have recently signaled their support for extending the deal and it seems unlikely that Saudi Arabia and Russia would have announced such an extension without being assured that the other members would agree.”
The statement also mentioned the possibility of additional countries joining the deal.
However, it is not clear who else may be willing to cut production, according to the expert.
“Admittedly, output in Nigeria and Libya, both of which are exempt from the current deal, has risen recently. But production in both countries is still well below its previous levels and is extremely volatile. It therefore seems unlikely that Libya and Nigeria will agree to freeze their production,” Pugh believes.
Capital Economics estimates that if OPEC simply rolls over its cuts until March 2018, the market will be in an average deficit of about 1 million barrels per day over the period.
In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.
Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from Jan. 1, 2017 for six months, extendable for another six months.
OPEC agreed to slash the output by 1.2 million barrels per day from Jan. 1.
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