OPEC and non-OPEC oil giant Russia have agreed to extend oil production cuts until the end of 2018, after hours of discussions in Vienna on 30 November 2017
However, OPEC has also decided to review progress based on the market fundamentals at its next meeting in June 2018.
“In view of the uncertainties associated mainly with supply and, to some extent, demand growth it is intended that in June 2018, the opportunity of further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards re-balancing of the oil market at that time,” said OPEC reporting to the press.
The decision to curb oil production was adopted in OPEC’s meeting in November 2016 for a production adjustment of 1.2 mmbbl for six month. On 25 May 2017, OPEC further decided to extend output cut for a further nine months.
Commenting on OPEC’s decision, Viktor Nossek, director of research at WisdomTree in Europe, said, “OPEC’s decision to extend the production cut comes as no surprise, with markets already pricing it in earlier today.”
“This highlights oil producing nations’ increased willingness to tighten supply collectively to stave off the threat of shale and force oil prices higher,” Nossek added.
OPEC has also decided to exempt Nigeria and Libya from the deal, mainly due to uncertainty and below-the-normal production of both the countries.
Speaking about curbing oil output, Khalid al-Falih, minister of energy in Saudi Arabia and president of OPEC, explained that it was too early to talk about exiting the cuts at least for a couple of quarters as the world was entering a season of low winter demand.
Following OPEC’s meeting, Ann-Louise Hittle, vice-president of Wood Mackenzie, forecasted, “A mid-2018 review could be warranted due to several uncertainties that could shift the fundamentals for 2018. These include political risk to oil supply, level of recovery from Libya and Nigeria, and rate of growth in US oil production during 2018. Another is world oil demand growth. If it is stronger than expected, it would cause the oversupply we expect in H1 2018 to shrink.”
