Breaking News
0

Is An Extension Of OPEC's Oil Production Cuts Really A Done Deal?

By Ellen R. Wald, Ph.D.CommoditiesApr 26, 2017 06:42AM ET
www.investing.com/analysis/is-an-extension-of-the-oil-production-cuts-really-a-done-deal-200185186
Is An Extension Of OPEC's Oil Production Cuts Really A Done Deal?
By Ellen R. Wald, Ph.D.   |  Apr 26, 2017 06:42AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

OPEC’s May 25 meeting, at which ministers will consider extending their production cut agreement, is now a month away. Most signals currently point towards an extension for at least another three months. However, there are still some reasons to be doubtful.

An extension of the deal would likely cause a short-term bump in the price of oil and, at minimum, stabilize prices in the the low $50/barrel range. A failure to extend the deal could cause oil prices to drop significantly.

Recent signs in favor of an easy extension include the following:

  1. Saudi oil minister Khalid al-Falih (the most powerful member of OPEC) told a press gathering in Abu Dhabi last week that despite “a strong level of commitment in the past three months,” OPEC and non-OPEC countries have not yet reached their goal of drawing down global inventories. Al-Falih has previously indicated that OPEC’s goal is to bring global inventories down to the five-year average. At the end of February, stocks in OECD countries measured 336 million barrels above that target. This suggests Saudi Arabia will seek to extend current cuts for at least another period of three to six months.
  2. The energy ministers from the Gulf States (Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE and Oman) signaled that they had reached a preliminary agreement to extend the production cut deal. Bahrain and Oman are not OPEC members, but they joined the production cut deal along with nine other oil producing countries last December. It seems as though these countries intend to build a broader consensus among producing countries using this preliminary agreement as a basis. Details of the agreement, however, have not been made public.
  3. At last week’s OPEC/Non-OPEC Joint Technical Committee meeting in Vienna, members recommended that the production deal be extended for an additional six months after it expires in June. Representatives from Kuwait, Venezuela, Algeria, Russia and Oman considered production levels from all participants and concluded that although compliance with the cuts improved over the past two months, the deal should still be extended to help resolve the ongoing glut of crude oil.

On the other hand, there are signs that some key producers are skeptical of a deal extension. These risks come from some of the largest producing countries and could endanger the success of a deal to extend production cuts.

  1. Russian energy minister Alexander Novak has indicated that he will attend the next OPEC meeting to discuss extending the production cuts, but he has not yet signaled whether Russia sees a need for such an extension. Russian agreement and participation was key to OPEC’s consensus agreement last November. At the time, Russia agreed to cut 300,000 bpd before any other non-OPEC producers agreed to production cuts. There has been some tension between Russia and Saudi Arabia over Russia’s failure to fully implement its assigned cuts over the past several months, and it seems as though Novak will face a serious challenge convincing Russian companies to agree to extend their cuts. Right now, Russia’s agreement and compliance is the most significant threat to an extension of the production cut deal.
  2. Iraq, the second largest producer in OPEC, was very critical of the initial OPEC production cut deal and unsuccessfully sought an exemption. Iraq initially cut production during the first few months of the year. However, in March Iraq increased production. Convincing Iraq to sign on to a three or six month extension of the deal will be difficult but crucial. OPEC only adopts policies by consensus. The leader of Iraq’s ruling coalition recently said: “it is the right of Iraq to hope for an exemption by the other OPEC member states.” Currently only Nigeria and Libya are exempt from OPEC production cuts, and Iran has a lesser burden. It will be an uphill battle for Iraq to negotiate an exemption, but Iraq’s insistence could threaten an OPEC consensus.
Is An Extension Of OPEC's Oil Production Cuts Really A Done Deal?
 

Related Articles

Is An Extension Of OPEC's Oil Production Cuts Really A Done Deal?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
Stanley Emmy
Stanley Emmy Apr 28, 2017 3:07PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ellen, thanks for this insightful analysis.
Reply
0 0
Marc Mosqueda
Marc Mosqueda Apr 26, 2017 11:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I signed up for the draft to obtain a Government loan during the Reagan administration. And yes Government Intervention in this case works. I am also on my second student loan at 55 years of age and find it Ironic we are in a War that is longer than the Vietnam Era. I hope the conservative GOP knows what they are doing as far as diplomacy is concerned. I will be keeping an eye on on crude oil along with the Canadian Dollar usd - cad for a day trade. I am an up and coming full-time electronic day trader from the Chicago Land area in Indiana and former Funeral Director and Embalmer.
Reply
0 0
Steve Silvers
Steve Silvers Apr 26, 2017 8:20AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This reporter does nothing but recite things that everyone already knows and sells it as new "news". I could write a better story by doing some analysis and then predicting an outcome adding the data the analysis was based on so readers could form their own opinion.
Reply
0 0
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email