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UAE Oil Minister: OPEC Deal Could Extend Beyond 2018

The OPEC/Russia deal for crude oil production cuts could extend beyond 2018, the United Arab Emirates’ energy minister, Suhail al-Mazrouei has suggested. Speaking to CNBC, Al-Mazrouei said "I am expecting that this group of countries that stood and have become responsible for helping the market to correct, (that) there is a very good chance that they could stick together and put a shape around that alliance."

His statement comes amid a variety of scenarios on how the deal might come to an end, featuring civil unrest in Venezuela and Iran that may lead to supply disruptions; Russia pulling out of the pact in June; OPEC members and other parties to the deal starting—or continuing—to cheat; and oil prices rising too high.

For now, it looks like the last scenario is most likely: there is already talk that OPEC would act if Brent tops US$70 a barrel, as this would spur faster oil production growth in OPEC’s number-one foe, U.S. shale. The talk comes amid EIA forecasts that U.S. total crude oil production could hit 11 million barrels daily by late 2019.

The scenario where Russia pulls out unilaterally is also likely: its oil majors have been complaining about the deal and how it is creating stumbling blocks on the road towards the industry’s expansion plans. With the influence that Rosneft’s CEO Igor Sechin can wield among local politicians, and the fact that President Putin seems reluctant to rein him in, there is a chance that the Kremlin could yield to the industry’s insistence to stop curbing production.

Al-Mazrouei’s comment could be a hint as to the exit strategy that OPEC may decide to pursue to avoid too big a slump in oil prices when it announces the end of the deal: other OPEC officials have already remarked that the exit would be gradual. Common sense suggests that the more gradual it is, the better for prices, so hints in the direction of another extension would certainly help buoy benchmark prices.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on January 11 2018 said:
    The OPEC/non-OPEC production agreement has so far achieved three major objectives. The first is the continued rise in oil prices since early December 2017. The second is the almost re-balancing of the global oil market. And the third is that it gave a new lease of life to OPEC.

    As a result of the above, the only valid scenario, in my opinion, for the OPEC/non-OPEC production agreement is to be kept beyond 2018 with the proviso that it will act as a barometer to reflect changes in oil prices and global demand for oil and preempt the return any of glut in the market. If members of OPEC and Russia feel by the end of 2018 that the oil prices are holding steady beyond $70/barrel and the oil market has become well balanced, then they could agree to reduce the cuts a little to reflect these facts.

    The historically important Moscow-Riyadh cooperation is vital for the oil prices and the stability of the global oil market. They can act as a counterbalance to the US shale oil production or any attempts by the US Energy Information Administration (EIA) and the International Energy Agency (IEA) to manipulate the oil prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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