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Did OPEC Need To Cut Oil Output At All?

Global oil demand continues to…

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Global Energy Advisory December 1st 2017

OPEC

OPEC and its partners in the Vienna Club agreed to extend their oil production cuts to the end of 2018 – a widely expected move despite doubt about Russia’s willingness to support the extension. This doubt has now been cast aside and the only thing that suggests the cuts may not last until the very end of the year is the stipulation that the partners will meet to discuss progress in June. In other words, they’ve got an exit plan.

Since the extension had been factored in by traders, oil prices remained stable, so the announcement was met with a lackluster market response. One change this time around is that Libya and Nigeria, which were exempted from the initial deal, have now agreed to cap their production at current levels to support their OPEC co-members efforts to boost prices. This doesn’t really mean much. Libya would have had a hard time producing more than it’s producing right now regardless. So, for all intents and purposes, it’s still an exemption.

Prices saw a significant rally on Friday morning as bullish sentiment returned, but a new issue is now emerging: how will the Vienna Club wind down the cuts? This question seemed to be of particular concern for Russia at the meeting, according to sources close to the talks. It should be of concern to all participants, in fact: the wind-down needs to be gradual to avoid prices tanking again on oversupply worries.

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