Opec deal likely to be extended to prop up oil prices

Opec (Organisation of the Petroleum Exporting Countries) is expected to extend the production cut agreement till the end of 2018 or at least for another six months when they meet in Vienna later this week, analysts said.

Oil prices have rallied in recent weeks on the optimism that Opec will extend the output cut agreement beyond March 2018, although geopolitical factors, especially developments in Saudi Arabia, Iraq and Iran, played their part in pushing oil prices higher.

Opec member countries along with Russia and other oil producers will meet in Vienna on November 30 to take a decision on the extension of the agreement that came into effect early this year.

“Having been successful up until now in bringing down global stocks, Opec is likely to play it safe and give the market what it wants, an extension that runs to the end of 2018,” Ole Hansen, head of commodity strategy at Saxo Bank, told Gulf News.

Oil producing countries are cutting production by about 1.8 million barrels a day since January 1 to rebalance oil markets and support oil prices.

Brent, the global benchmark, is currently trading at $63.86 per barrel, up by 0.49 per cent. US crude West Texas Intermediate is up by 1.60 per cent to trade at $58.95 per barrel, a two-year high as the shutdown of a major crude pipeline from Canada to the United States tightened North American markets.

“Extending the cuts towards the end of 2018 should reduce the need for Opec to deliver any detailed plan about an exit strategy. It will, however, become a major headache should demand growth fail to lie up to expectations or non-Opec production growth surprises,” Hansen added.

Russia, which is one of the biggest oil producers outside the Opec group is expected to agree to the extension as the country is heavily dependent on oil revenue and needs money to support the economy.

“We expect Russia to accept and embrace the cutback extension at the Opec meeting in Vienna. The country lost out heavily during the oil price collapse in 2008-09 and mid-2014,” said London based analyst Mihir Kapadia, CEO and Founder of Sun Global Investments.
“So far Opec has been disciplined and there have been few lapses by its members. If this changes and Opec members lose significant discipline, production will spike and prices could come under pressure.”

“In the medium term, it is necessary to have some sort of production understanding to anchor production in line with market demand. Only then, can we see continued long-term growth in prices,” added Kapadia.

Opec countries will also pay attention to rising shale oil production in the US when they meet in Vienna. According to the latest report from Baker Hughes, US rig count is up 8 rigs from last week to 923.
Rig count has been going up since last year due to rise in oil prices with 330 new rigs added from last year’s count of 593.

Meanwhile, UAE Energy Minister Suhail Al Mazrouei said he’s optimistic the producers will extend their deal on output cuts when they meet on November 30. Shale oil represents only a fraction of global production and “is not an enemy to Opec,” he told reporters in Abu Dhabi,
“What we are seeing today is that prices are in continuous improvement. Oil markets are on track to come into balance next year,” Al Mazrouei said.
Source: Gulfnews