OPEC may face 3-month deferral risk in extension decision
Baku, Azerbaijan, Nov.10
By Leman Zeynalova – Trend:
The most likely outcome (50 percent probability) of the November 30 OPEC meeting is that members remain cohesive and extend production cuts into mid-2018, Manaar Energy, a Middle East consultancy that specializes in GCC/OPEC oil strategy said in its analysis.
The US JP Morgan Bank analysts believe that policy (OPEC-Russia accord) and socioeconomics (and not necessarily fundamentals) will drive the November decision with OPEC members. However, the analysts warn that there may be a risk of a 3-month deferral in making a decision to extend the deal.
“OPEC is a marriage of mutual inconvenience, but tensions remain. The general consensus was that the cuts seem to be working and compliance has been better than expected, thanks largely to the political alliances within the GCC. The risk is that negative rhetoric on compliance (Iraq), especially in a higher oil price environment, re-ignites tensions,” said JP Morgan.
Additionally, production cuts by OPEC have been partly offset by Libyan and Nigerian volumes (both were exempt from the production quotas) and there is a chance that the reintroduction of formal quotas for both countries becomes a key debate at this month’s meeting, according to the analysis.
As for Saudi Arabia, the analysts believe that Saudi oil policy will remain dynamic.
“Saudi's oil policy is likely to remain dynamic as it looks to balance short-term fiscal needs against long-term market share aspirations. The country will likely seek short-term oil price stability to manage fiscal reforms which are working, but at a slower pace,” said the analysis.
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 next OPEC meeting is expected to take place Nov.30.
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