Baku, Azerbaijan, Jan.8
By Leman Zeynalova – Trend:
The idea that the 24 producers who came together and struck a deal to cut production by 1.8 million barrels per day in November 2016 are somehow going to ‘exit’ the alliance later this year is misleading, according to S&P Global Platts.
“There will be no exit when OPEC, Russia and other non-OPEC producers decide the market has rebalanced, rather a continuation of the grand alliance under amended, and most probably looser, terms,” said the analysis from S&P Global Platts.
But while there is uncertainty as to what that new agreement will look like, the market will anxiously hang on to the exit strategy term and these jitters could serve to keep an ultimate cap on prices, according to the analysis.
As for the possibility of Russia’s ending the deal with OPEC, S&P Global Platts analysts believe that OPEC and Russia need each other indefinitely.
“The growing political nexus between Russia and Saudi Arabia, Russia’s increasing swagger as joint head of this broad OPEC alliance, as well as the budgetary need for sustained higher prices means Russia could well be in it for the long haul,” said the analysis.
Earlier, Kuwait’s minister of oil, electricity and water Essam Al Marzouk said that OPEC and participating non-OPEC countries may end the deal on oil production cut by late 2018.
“In accordance with the agreement, we still have a whole year, but it is likely that we will exit the deal before early 2019, if the market recovers by June,” he said.
It was reported that OPEC has started working on plans for an exit strategy from its deal to cut supplies with non-member producers.
Two OPEC sources said the group’s secretariat in Vienna has been tasked to work on a plan with different options and it was too early now to say what the plan would look like.
“It’s a continuity strategy, rather than exit,” one of the OPEC sources said.
OPEC and several other non-OPEC producers have reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November 2016.
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