By March 20, 2017 0 Comments Read More →

OPEC supply cut could be extended, but non-members in pact need to comply

OPEC supply cut

Tough negotiations are expected in May’s meeting in Vienna concerning the proposed extension of the OPEC supply cut. OPEC photo.

OPEC supply cut, price increase encouraged growth in US shale production

The Organization of the Petroleum Exporting Countries members taking part in the OPEC supply cut are increasingly in favor of extending the pact beyond June, but add that Russia and other non-members who took part in the agreement need to remain part of the initiative, according to Reuters.

A number of cartel member countries along non-members, including Russia and Mexico, signed on to the pact that was meant to reduce the supply of crude by 1.8 million b/d to balance the market.

The deal has resulted in higher oil prices, but crude inventories in industrialized nations are also rising and higher commodity prices have encouraged US shale companies to increase their production.

A growing number of OPEC officials believe it could take longer than six months to rebalance the market.

“An extension is needed to balance the market,” an OPEC delegate told Reuters. “Any extension of the cut agreement should be with non-OPEC.”

The cartel is hoping the OPEC supply cut will result in crude stocks in the industrialized world to fall to the average of the past five years.  The most recent data, which was released in January, shows crude inventories and refined products were 278 million barrels above that level.

OPEC sources say it is increasingly apparent that the deal must be extended beyond June to make a dent in supplies, however, sources say all OPEC producers along with non-members must agree.

“The ministers will meet in May to decide, but everyone has to be on board,” an OPEC source from a major producer said.

OPEC is scheduled to meet on May 25 in Vienna and OPEC Secretary-General Mohammad Barkindo says there will also be a gathering of OPEC and non-OPEC producers in May.

One Reuters source said “Hard negotiations are on the way.”

Russia signed on to the deal and has not yet publicly said whether it will support the supply cut extension.  Moscow is wary about the revival of US shale production due to higher prices.

Referring to the possible extension, one source from a non-OPEC participant said “It’s too early to know whether everyone will agree to this.”

The shale rally which has added to the global oversupply has worried OPEC producers.  But one OPEC source told Reuters that shale production was expected to grow by about 300,000 b/d in 2017, a level the market could accommodate.

 

“OPEC heavyweights such as Saudi Arabia are not happy with the return of shale oil in full force and have to make a hard choice between losing part of their market share or steady income,”  a source from a major non-Gulf OPEC producer told Reuters.

“They will more likely opt for income and will push to get help from non-OPEC.”

Posted in: Energy News

Post a Comment