BP optimistic about extension of OPEC+ deal
Baku, Azerbaijan, Oct. 25
By Maksim Tsurkov – Trend:
BP believes there is high probability of extending the OPEC+ agreement, said BP Chief Economist for Russia and CIS Vladimir Drebentsov during the presentation, “BP Statistical Review: Oil and Gas Markets in Transition” and forecasts until 2035 in Baku Oct. 25.
He said that currently, the market balance with respect to supply-demand is improving, which is the result of OPEC decision to reduce oil production in November 2016.
“At the same time, OPEC can not stop the growth of production in the US, which began as a result of the shale revolution. The effectiveness of OPEC’s decision is visible from the dynamics of oil prices, but on the other hand, it could be more effective. Not all countries have fulfilled those obligations that they undertook. Moreover, Libya and Nigeria increased production during this period, because the quota regime was not extended to them,” noted the expert.
It is important now for OPEC what will happen after March 2018, when the current agreement expires, according to him.
“We proceed from the assumption that the probability of extending this agreement is quite high. Most likely, OPEC agreement on reducing production will continue, because the task has not been fully implemented. The problem began to be solved, commercial stocks began to decline, but they have not returned yet to normal levels. And for this, it is necessary to extend the agreement on production cut for entire 2018,” said Drebentsov.
He also noted the possibility that once the agreement is extended, OPEC will have to modify it, at least in two directions.
“It will be necessary to extend the quota regime to Libya and Nigeria, because the fact that this was not done initially, reduced the efficiency of the solution. The second issue, which will have to be considered and solved, is related to the fact that the current production quota regime was not the most effective mechanism for regulating the supply of oil on the world market,” he said adding that because it is important how much oil is delivered to the market.
“This is due to the fact that there are countries that physically reduced production, but at the same time increased the export of oil. In this regard, I believe that OPEC will have to make some modifications in the extension of the agreement,” added Drebentsov.
In December 2016 in Vienna, 11 non-OPEC countries, including Azerbaijan, agreed to curtail oil output jointly by 558,000 barrels per day. The agreement was signed for the first half of 2017.
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.
Follow the author on Twitter: @MaksimTsurkov