Baku, Azerbaijan, Sept.11
By Leman Zeynalova – Trend:
Deepening the oil output cuts seems unlikely given OPEC don’t want to cede even more market share to US producers, Tom Pugh, the economist at British economic research and consulting company Capital Economics, told Trend.
On May 25, OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.
The reductions will be on the same terms as those agreed in November.
Earlier, Russia and Saudi Arabia proposed to extend the oil production cut deal by June 2018.
“I don’t think extending it to June will be enough to do much. They would have to extend it until the end of 2018 in order to make any sort of difference,” said Pugh.
Moreover, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Mark pointed out that back in November 2016, this deal was intended as a short term nudge to rebalance the market, it is now looking increasingly likely that this supply cut is almost a permanent necessity.
Pugh noted that it would also reopen the discussion on quotas which could lead to countries such as Iraq trying to increase their quotas.
“I think countries such as Iraq and Iran would be very reluctant to reduce output further, it seems that Saudi Arabia and Russia are at least willing to contemplate additional cuts. That said, Saudi Arabia has previously been quite insistent that it would not cut by more,” added the expert.
Iran has prioritized seven major oil fields for development - in West Karoon Block and South Pars gas field’s oil layer.
During the first seven months of 2017, Iran launched Azar field and South Pars’ oil layer, while the statistics, prepared by Iran’s Oil Ministry and seen by Trend, indicate, that the other five fields, placed in West Kroob Block were also in development.
Currently, Iran produces 20-25 thousand barrels per day from the oil layer of South Pars, while the production level at Azar field reached 15,000 b/d. Iran plans to double the oil output of South Pars and increase the Azar’s output to 65,000 b/d.
Pugh believes that if the OPEC deal ends as scheduled in March the rebound in supply will push the market back into a surplus, which will put downward pressure on prices.
“I’m not sure how much the market is really factoring in an extension to the deal at this point but prices would almost certainly fall,” he added.
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