OPEC supply pact likely to continue to end of 2018

Saudi Arabia’s Crown Prince Mohammad bin Salman says he is in favour of extending the OPEC supply pact to the end of 2018. AFP photo by Fayez Nureldine.

OPEC supply pact initially set to expire in June 2017

The OPEC supply pact is likely to continue throughout all of next year, despite potential cartel output disruptions, according to Reuters’ OPEC sources.

Since the beginning of January, most OPEC producers along with Russia and nine other oil producing nations, cut their overall output by about 1.8 million barrels per day (b/d).

Initially, the deal undertaken to cut the global crude glut, was supposed to expire in June of this year, but was extended until March 2018 last May.

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In recent weeks, major players including Saudi Arabia and Russia have voiced support for prolonging the agreement to the end of 2018.

And even though production interruptions in countries like Venezuela, Nigeria and Libya are expected to continue into 2018, sources say Saudi Arabia and OPEC are unlikely to raise output elsewhere to fill the output gap.

OPEC is focussed on cutting crude stocks in OECD industrialized nations to their five-year average, according to a Reuters source familiar with Saudi Arabia’s oil policy.

“OPEC is likely to stay the course for the rest of 2018. We want to see commercial stocks going down,” the source said.

The source told Reuters output from Venezuela could fall next year by 300,000 to 600,000 b/d and the cartel believes supply disruptions seen in Libya and Nigeria this year could continue.

“The feeling in OPEC is that $60 (a barrel) should be the floor for oil prices next year,” the source said.

Concerns about what will happen to the oil market when the pact expires have been voiced recently.

However, Saudi Arabia’s Energy Minister Khalid al-Falih said last week said he could see a prolonged restraint in output after the agreement ends.  The Saudis say they are intent on cutting global inventories.

On November 30, OPEC will meet with other pact participants when the cartel gathers for its meeting in Vienna.