May OPEC achieve coordinated production cuts in December?
Baku, Azerbaijan, Nov.14
By Leman Zeynalova – Trend:
The upcoming OPEC meeting in December is unlikely end with agreement to cut oil production, Capital Economics, the UK-based consulting company believes.
“OPEC and its partners (OPEC+) are set to meet in early December but, in our opinion, a co-ordinated production cut is not a given. Russia has already made it clear that it does not think that a cut is necessary, a view that may be backed by a number of OPEC members. After all, it is still unclear what the effect of US sanctions will be on supply from Iran,” the company said in a report obtained by Trend.
The consulting company estimates that Iran’s production could drop by about 1 million barrels per day (1 percent of global supply) owing to sanctions.
Indeed, according to the estimates of Capital Economics, the country’s output has already fallen by 0.56 million barrels per day since May, but OPEC+ has raised production by 0.6 million barrels per day over the same timeframe and US shale output continues to surge.
“Meanwhile, the new supply is coming on stream at a time of slowing global activity, most notably in China but also Japan and Germany. What’s more, we expect economic growth in the US to soften in 2019. Slower economic activity should translate into more subdued global growth in oil demand of just 1 percent in 2019, down from estimated growth of 1.3 percent this year,” said the report.
Taking all this together, the company believes that the market should move into a small surplus next year, assuming that OPEC maintains its current level of output.
Of course, Iran is not the only risk to supply, the UK company believes. “Venezuela’s production is in long-term decline and there is always the risk that civil unrest will disrupt output in Libya and Nigeria.”
“But the underlying fundamentals point to weaker prices. As such, we are happy to reiterate our forecast that the price of Brent will fall to $60 per barrel by end-2019, from $67 at the time of writing.”
In December 2016, at a meeting of oil producers in Vienna, 11 non-OPEC countries, including Azerbaijan, agreed to cut oil production by a total of 558,000 barrels a day. The agreement was concluded for the first half of 2017 and was extended until the end of the first quarter of 2018 at a meeting on May 25, 2017.
At the last OPEC meeting in Vienna, the agreement was again extended until the end of 2018. Azerbaijan supported the decision.
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