Oil producers to extend output curbs at Opec meeting
VIENNA, Austria — Oil producers inside and outside the Opec cartel have little choice but to extend their deal from late 2016 curbing output when they meet in Vienna on Thursday, analysts say.
Less predictable however is the extent to which this will succeed in boosting the price of crude, particularly with US shale producers back from the dead and pumping at near-record levels.
In November the Organization of the Petroleum Exporting Countries (Opec) agreed to slash output by 1.2 million barrels per day (bpd) to reduce a global supply glut and lift the oil price.
The following month several nations outside the cartel, notably including Russia, agreed with Opec to reduce their production by 600,000 bpd.
The low price, close to just $25 per barrel in early 2016, had battered the finances of all producers, not just stricken Venezuela but even rich-as-Croesus Saudi Arabia.
The agreement helped lift the oil price to the current level of just above $50 per barrel, although this is still less than half that of 2014.
The deal was also a dramatic policy turnaround for Opec and even saw regional rivals Saudi Arabia and Iran, at daggers drawn otherwise, see eye to eye.
Saudi Arabia and Russia, the biggest of the 24 producers in the accord — and which don’t get on in other areas either — agreed last week that it should be extended until March.
With others including Kuwait signaling their assent, 24 out of 25 analysts polled by Bloomberg News said they expected the curbs to be prolonged, the only question being for how long.
“I think it would be a pretty big shock if they didn’t” (extend the agreement), Capital Economics analyst Thomas Pugh told AFP.
Victims of success
Analysts said that, assuming the deal is extended, the impact in reducing crude inventories should become more apparent from July because of a seasonal pick-up in demand.
However Opec and the other producers run the risk of being victims of their own success because of shale oil producers in the United States, which are not part of the accord.
Before, Opec’s strategy was to keep pumping at full tilt in order to push the oil price lower and make life difficult for the Americans, who need a higher price to make money.
When the oil price was at its nadir in 2016, scores of US firms went bankrupt. But with the recent rise, many have returned to the market — and with a vengeance.
US production has risen 850,000 bpd from its 2016 lows to 9.3 million bpd now, not far from the all-time record set in 2015 and just shy of Saudi output levels.
According to Valentin Bissat at Mirabaud Asset Management, this shows that Opec “has lost some its ability to fix (oil) prices”.
And according to Commerzbank, rising US production, which will reduce Opec’s market share, will make “discipline… gradually crumble” among its members to stick to the curbs.
“We therefore still expect to see a Brent oil price of less than $50 a barrel at the end of the year,” the German bank said in a research note. CBB