• 3 minutes Could Venezuela become a net oil importer?
  • 7 minutes Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 12 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 15 hours Oil prices going Up? NO!
  • 2 hours Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 6 hours Renewables to generate 50% of worldwide electricity by 2050 (BNEF report)
  • 36 mins The Tony Seba report
  • 2 hours Kenya Eyes 200+ Oil Wells
  • 2 hours Are Electric Vehicles Really Better For The Environment?
  • 1 day Oil prices going down
  • 11 hours Saudi Arabia turns to solar
  • 1 day Could oil demand collapse rapidly? Yup, sure could.
  • 23 hours China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 2 days Oil Buyers Club
  • 2 days Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 2 hours OPEC soap opera daily update
  • 1 day Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 2 days Gazprom Exports to EU Hit Record
  • 1 day Tesla Closing a Dozen Solar Facilities in Nine States
Alt Text

OPEC+ Proposes 1-Million-Bpd Production Increase

The joint ministerial monitoring committee…

Alt Text

Shale Drillers’ $7 Billion Hedging Error

The rebound in oil prices…

Alt Text

NAFTA Rift Could Be A Boon For Canadian Oil

President Trump’s plan to renegotiate…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

More Info

Trending Discussions

Can OPEC Control The Oil Bulls In Vienna?

OPEC

Until a month ago, oil analysts and investors thought a nine-month extension of the OPEC production cut agreement was a foregone conclusion.    

But as the November 30 meeting draws near, oil prices have begun to rally on the back of a growing geopolitical risk premium as tensions rise in the Middle East. In addition, signs of a tighter oil market and of “steadily returning” stability, as OPEC loves to put it, have pushed oil prices to their highest levels in more than two years.  

Now it’s those higher oil prices—with Brent trading above $60 a barrel for more than three weeks in a row—that may unravel the OPEC production cut unity and the cartel’s pact with the non-OPEC producers led by Russia.

As they meet in Vienna next week, OPEC and friends face the dilemma of managing (and meeting) market expectations without allowing too much optimism that would boost U.S. shale.

A nine-month extension—which was almost a certainty one or two months ago and which has been largely priced into oil prices already—now looks less certain, or at least OPEC and non-OPEC Russia want us to think so. By managing (i.e., lowering) expectations, they’ll possibly have a contained oil price drop if an announcement next week is underwhelming.

The meeting in May that extended the original pact until March 2018 disappointed the market because that extension was already widely expected, and investors wanted grander “whatever it takes” measures, such as deeper cuts.

Related: The Hidden Cost Of Electric Cars

This time around, OPEC producers are expected to go into the meeting happier—with Brent over $60—but if they don’t agree on an extension, they are worried that oil prices could drop, Gary Ross, head of global oil analytics at S&P Global Platts, tells MarketWatch.

Leaving aside the timing of communicating the extension of the deal, the other conundrum is how long that extension should be.

“They’re not sure how long to extend the agreement because…they don’t want to ignite shale” Ross said. “So it’s tricky for them,” he noted. 

According to Ross, internal OPEC figures imply that the OECD inventories won’t fall back to their five-year average until September 2018. So there’s a “general belief that OPEC would like to extend the agreement to the end of September, but given the strength in prices, they may be reluctant to do that,” Ross told MarketWatch. 

Considering all the dilemmas that OPEC is now facing, their “best game plan” might be to decide to extend beyond March, but decide or communicate the length of extension later, according to Ross.

Over the past month, there have been growing voices that the decision to extend may not come at the November 30 meeting.

Last week, Citi said that the “recent rally in oil prices has been heavily driven by geopolitical risk and increasing optimism on an OPEC deal at the upcoming 30 November OPEC meeting. But Citi analysts believe the latter reason is likely overestimated.”

Citi thinks that “the likelihood of a nine-month extension remains high, but the likelihood that the decision will be deferred until 2018 also cannot be ignored.”

“The market expectation is for an extension through 2018, created by OPEC comments early this fall ... [but] there is increased risk that OPEC delays the extension decision,” Morgan Stanley said in a note to clients on Monday, as carried by Reuters.

Last week, Saudi Arabia’s Energy Minister Khalid al-Falih admitted that global inventories would not have fallen to their five-year average by March 2018, so an extension “of some sort” is needed. Related: Is This The New Sweet Spot For Shale?

Referring to the timing of the announcement, al-Falih—OPEC’s most influential oil minister—told Bloomberg Television in an interview:

“My preference is to give clarity to the market, and announce on Nov. 30 what we are going to do.”

“I’m committed to a full-consensus process,” he said, adding that the cartel would have a “gradual adjustment” kind of exit strategy to avoid flooding the market with oil once the cuts expire.

While Saudi Arabia is working to have an OPEC announcement and to give clarity to the market next week, Alexander Novak—the Energy Minister of Russia, the key Saudi partner outside OPEC in these cuts—has already hinted that the decision could come at a later stage. Moreover, Russian oil firms are said to be balking at a further extension, arguing that their production restrictions are only benefiting others while Russian companies have to cut back from new projects in which they have heavily invested. 

Novak will meet Russian producers again this week, while Saudi Arabia will try to reach a ‘full consensus’. At any rate, OPEC and allies have ten more days to manage expectations, and possibly reach some sort of consensus on this much-hyped extension that won’t disappoint oil bulls.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News