OPEC and its partners may decide to keep the oil production cuts until the end of the year as the cartel fears a steep price drop if cuts were to be reversed within the next couple of months, the Wall Street Journal reported citing delegates at a Sunday meeting of the extended producers' club.
However, there seem to be two ways to do that: one would be to have everyone comply 100 percent with the production targets set out in the December agreement that called for the removal of a combined 1.2 million bpd from global supply. Another is to allow individual members of the club to implement a different level of cuts by taking as baseline the average monthly production rate for a month of their choice between September and December 2018.
According to the WSJ sources, however, while an attempt at strict compliance with the December targets would eventually reduce global inventories in the second half of the year, the other option would result in an eventual increase in the five-year average of global supply.
However, it is doubtful OPEC+ will succeed in reining in all producers who have not been fulfilling their December production quotas, such as Iraq, for example, or Russia. Russia may in fact be mulling over an exit from the deal, which it never wholeheartedly embraced.
This is nothing new for Russia, which had dragged its feet in supporting each of the previous production deals with OPEC ever since the parties decided to team up to manage global oil supply and oil prices beginning in January 2017. After 2017, ahead of each meeting, comments and hints of top Russian officials, including Vladimir Putin, left the oil market and analysts only guessing whether Moscow would play ball this time around. Related: The 2 Energy Giants Reshaping The Middle East
Indeed, according to Energy Minister Alexander Novak, speaking to CNBC after the joint ministerial committee meeting yesterday, a production increase is also on the table.
"But this continuation could depend to various extents on how the situation unfolds by this time and what the forecasts for supply and demand will be on the market. If it turns out that there will be a shortfall in the market then we will be prepared to examine options linked with a possible increase in production," Novak said.
Oil has yet to react to the possibility of a reversal in the cuts. At the time of writing, both Brent and West Texas Intermediate were trending higher.
By Irina Slav for Oilprice.com
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Another factor hanging over oil prices is the ongoing trade war between the United States and China creating uncertainty and depressing global oil demand.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London