The ministerial committee overseeing the implementation of the OPEC output reduction agreement recommended its extension on Wednesday, just one day before the bloc's official summit in Vienna.
The agreement should be for another nine-month extension, the ministers said, giving it life until the end of 2018. An OPEC working panel concluded yesterday that the oil market would balance after June 2018, according to Reuters. "The best scenario would suggest third quarter for the rebalancing of the market," an OPEC source told Reuters.
Extending the pact until the end of next year is still considered to be the base scenario, and the oil market has largely priced in such decision. If OPEC falls short of this base expectation, oil prices could take a hit. On the other hand, rolling over the cuts until end-2018 could over-tighten the market and boost prices more, giving U.S. shale all the more reason to raise production.
Canada is boosting production as well, a move that threatens to undo progress made by the bloc's agreement. Exxon Mobil inaugurated the Hebron field in Newfoundland this week, according to a report by Bloomberg. The field will produce 150,000 barrels of oil per day at its peak-filling a supertanker worth of oil every couple of weeks.
Related: OPEC Has Backed Itself Into A Corner
Canada, along with its southern neighbor, is not part of the Organization of Petroleum Exporting Countries (OPEC), which has systematically reduced its output since the beginning of the year. A majority of Canadian crude is bought by the United States and transferred through a network of pipelines linking the two countries.
Mexico is another key crude supplier for the U.S., but this non-OPEC Latin country is working with OPEC to end the oil supply glut, although its contributions are small. Some commentators speculating that new nations could become involved in the agreement, causing the total cuts to dig deeper.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More
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