Saudi Arabia’s Energy Minister Khalid al-Falih has discussed with his Venezuelan and Kazakhs counterparts the option of extending the crude oil production cut deal beyond the March 31, 2018 deadline, the ministry said yesterday, as quoted by Reuters.
The report comes after last weeks’ media quoted Russia’s Energy Minister, Alexander Novak, as saying the option for another extension was on the table. Novak added, however, that it is too early to talk about anything definitive.
The initial OPEC-non-OPEC agreement pushed Brent prices up to almost US$57 a barrel and WTI to over US$54 a barrel in January this year, but since then, the benchmarks have been sliding down, with a few notable interruptions of the trend thanks to supply disruptions and the May decision to extend the cuts beyond the original deadline of June 30, 2017.
A growing number of analysts, however, are of the opinion that OPEC is digging itself into a deeper hole the more it extends the production cuts. Lower output from the cartel’s members means lower exports and, consequently, lower crude oil revenues. It is also costing them market share to rivals, including partner Russia and the U.S.
This loss will be difficult to recoup, analysts believe, so it might be more sensible for the low-cost producers in the Middle East to quit trying to prop up prices by curbing production. Instead, returning to growing production might do the trick by pressuring prices to a level where U.S. shale producers can’t keep pumping.
It’s questionable whether these OPEC members would be willing to make the U-turn. The latest export and floating storage data suggest the global glut is beginning to ease, albeit slowly. OPEC’s August exports were lower than July’s, even though they remained above the average monthly for 2016. Floating storage, according to Kpler, hit the lowest since 2015 over the 30 days to September 8, marking a 27-percent decline over the period. Even so, prices remain much lower than where OPEC and its partners hoped they would be following the deal.
By Irina Slav for Oilprice.com
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