In a statement, the joint committee of seven oil ministers from the parties to the cut said that the deal could be extended for another six months, depending on how oil’s fundamentals look in June. An earlier version of the statement, however, had the committee recommending the extension, according to Reuters.
The committee, which was set up to monitor the progress of the cuts and compliance rates, met in Kuwait over the weekend to review the situation. Its members commended the participants for their high rate of compliance – 94 percent as of February – and urged them to strive for 100 percent.
It seems that even a maximum compliance rate won’t change prices much, as U.S. inventory builds and rising production from the shale patch continue to offset the cuts already made by OPEC and its partners. Moreover, not everyone is on board with the extension idea. Russia, for one, said it needed more data before it considered such a move.
The effect of an extension could achieve the opposite of what OPEC needs, which is consistently higher prices, preferably above $60 a barrel. Yet the moment the initial deal was struck and prices started to climb, U.S. shale boomers buckled down and worked to boost their output, offsetting the cuts.
A deal extension would probably lift prices from their sub-$50 level, and that would again motivate shale boomers to continue pumping more and more – U.S. total crude output is set to exceed 9.5 million barrels daily next year, hitting and average of 10 million bpd at the end of that year, according to the EIA. Related: Energy Market Deregulation: Be Careful What You Wish For
Still, the OPEC committee argued that the current dip in prices was caused by lower seasonal demand and refinery maintenance season. Prices should perk up after the end of this maintenance season, and crude inventories in floating storage should shrink, as well.
All OPEC ministers are meeting again on May 24, when the extension is likely to be discussed.
By Irina Slav for Oilprice.com
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