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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…

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Oil Prices Slide As Saudis See No Need Of Extending OPEC Deal

South pars oil field

Oil prices were down early Monday morning after Saudi Arabia signaled that OPEC was unlikely to extend the supply-cut deal beyond June, which sparked off renewed fears that the pledged production cuts would not be able to eliminate the glut.

As of 9:15AM (EST), WTI Crude was down 0.29 percent at US$52.22, while Brent Crude was trading down 0.14 percent at US$55.37.

Speaking to reporters in Abu Dhabi, Saudi Arabia’s Energy Minister Khalid al-Falih said, as quoted by Reuters:

“We don’t think it’s necessary given the level of compliance...and given the expectations of demand.”

The minister of OPEC’s largest producer and de facto leader went on to add:

“Based on my judgment today it’s unlikely that we will need to continue [the agreement] - demand will pick up in the summer and we want to make sure that the market is supplied well. We don’t want to create a shortage or squeeze.”

Although al-Falih was quick to add that the deal would be extended if there is “need” to do so, fears returned (again) that the cuts pledged by OPEC and non-OPEC producers, including Russia, would not be enough to erase the oversupply, especially if producers returned to the pump-at-will policy after June of this year. Related: U.S. Shale To Kill Off Oil Price Rally

According to Bloomberg calculations based on International Energy Agency (IEA) data, should OPEC/NOPEC extend the deal for another six months after June, the estimated more than 300-million-barrel current surplus would be wiped out in the fourth quarter of this year. But if the producers call it an end in June and resume pumping at previous levels, two-thirds of the oversupply would still be there by the end of this year.

Another concern for the oil market is how much each OPEC member would really contribute to cuts and to what extent they would comply with the deal. On Friday oil prices had dropped amid concerns that OPEC may not be able to deliver on its promises.

By Tsvetana Paraskova for Oilprice.com

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  • Gregory Foreman on January 16 2017 said:
    In the words of Gomer Pyle, “surprise, surprise, surprise!” Not really! The Saudis’ intention with respect to reducing oil production from both OPEC and NOPEC countries was simply to test the “resurrectability”(yeah, I know it’s not a word) of the US fracking industry. Or, at what price levels-noticed that is plural-will the US fracking industry feel financially safe and secure in further expansion and exploration. The Saudis, and the whole world for that fact, know at what price level the US domestic industry will go “gag-gag”, ie justified, in resuming fracking. My prediction, as good as anyone elsees, within the next 24 days the price oil will drop below and stay below $50 a barrel until global demand mirrors global production-not one metric earlier-perhaps another three to four years. The Saudis played us like a violin-again.
    It reminds me of how Lucy keeps pulling the football when Charlie Brown tries to kick it. Only this time the Saudis are Lucy and the US fracking industry is Charlie Brown.

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