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Global Energy Advisory May 26th 2017

The biggest oil news of the week was certainly the OPEC announcement of an extension of the crude oil production cuts until March 2018. This additional 9-month lifeline is - according to the Saudi Energy Minister - “the safe bet that should do the trick” of rebalancing the market. It also gives another 9-month ‘reprieve’ to U.S. shale as well.

The initial November agreement has failed to restore global market balance. There were doubts over the past month as to whether the extension would happen, but more and more OPEC members jumped on board, as did Russia. Whether it will benefit U.S. shale producers or not, back in March, the Saudis said they would back a move that would give shale a boost.

But there isn’t much of a choice at this point: it’s either cut production or lower prices for longer. The first round of cuts proved not to be the instant elixir everyone was hoping for, even though prices are rising a bit at the moment, with WTI back above $50 at the time of writing and Brent moving closer to the $55 threshold. Still, there seems to be a consensus that shale producers will only accelerate their production ramp-up as prices climb, continuing to undermine the goal of OPEC and its partners. It’s an unwinnable game of cat and mouse.

So, what will OPEC and friends do after March 2018? By then, U.S. shale should have started to yield fresh output increases—even if not phenomenal ones. But Wood Mackenzie has…

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