OPEC’s production cut deal is unlikely to survive beyond its current deadline in March 2018, with the agreement seen falling apart towards the middle of next year, in which case a huge amount of extra oil would hit the market, Ian Reid, head of European oil and gas research at Macquarie, told CNBC on Thursday.
OPEC’s deal has not had the cartel’s desired effect on the markets, neither in terms of oil prices nor in drawing down the global glut.
According to Reid, the volume of U.S. shale output is basically nullifying OPEC’s efforts.
The key question for OPEC now is if they can extend the production cut deal into 2019, Macquarie’s manager said, but added that he did not see the cartel being able to do that.
“I think that’s going to be a very hard ask to be honest,” Reid noted.
“They can’t get the price up to a level where they can keep the shale guys out of the game so unfortunately they’re just chasing their tail at the moment,” he said, commenting on OPEC’s current strategy.
On Wednesday, Macquarie slashed its Brent price forecasts for the rest of this year as well as for 2018 and 2019, saying, “We believe OPEC has few options. Option 1 is to maintain cuts through 2019 and allow time for demand to grow and easy growth to slow; option 2 is stop the cuts immediately. The current strategy is probably the worst. The reality is even the most optimal of OPEC's potential strategies probably will not work.” Related: Shale Efficiency Has Peaked… For Now
Mounting fears of rising oversupply, coupled with no tangible signs for traders and analysts that OPEC’s agreement is working, sank oil prices to a 10-month low on Wednesday, with WTI touching its lowest intraday level since August last year.
At 10:19am EDT on Thursday, oil prices were edging up from yesterday’s lows, with Brent rising to above US$45 again, after having slipped below that threshold on Wednesday. Brent was trading up 1.36 percent at US$45.43, while WTI Crude was up 0.99 percent at US$42.95.
By Tsvetana Paraskova for Oilprice.com
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