OPEC Heads Towards Supply Cut Extension as Saudi Signals Most on Board
- Author: Zachary Reyes May 22, 2017,
May 22, 2017, 12:55
So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya, and a relentless increase in US shale oil output.
The extension through the first quarter of next year would help producers reach their goal of trimming global stockpiles to a five-year average, al-Falih said.
The Organization of the Petroleum Exporting Countries meets in Vienna to consider whether to extend the cuts agreed in December previous year between OPEC and 11 non-member countries, including Russian Federation.
OPEC sources have said that while a larger cut by existing participants was considered unlikely, one could still be debated and the size of the supply reduction could increase from 1.8 million bpd if more non-OPEC countries come into the deal. OPEC and its partners are focused on returning inventories to their five-year average which as of the end of 2016 OPEC estimates at 2.78 billion bbl.
Saudi Arabia is calling for an extension of the current agreement on global oil supply cuts.
This is despite Baker Hughes reporting that USA drillers added oil rigs for an 18th consecutive week, the second-longest streak of weekly additions on record, and the International Energy Agency this week calculating that inventories in industrialized nations totaled 3.025 billion barrels at the end of March - about 300 million barrels above the five-year average.
If Opec cuts production further, it will lose market share. In its latest assessment of oil markets, OPEC estimated non-OPEC production growth of 0.95 million b/d in 2017, a considerable upward revision from where it had previously pegged production from outside the group. Iran was also allowed to raise output because sanctions had crippled its supply. "They [the Iranians] will be treated like everybody else", said the oil minister.
"We welcome shale, we want it to be back, we want it to be at a moderate healthy level", Mr Al Falih said. "We did go the extra mile initially to set an example and be a role model, and I think our colleagues appreciated that and responded positively".
"Our interest is stable, healthy, balanced supply and demand on a global level, and for us to achieve that, we need stability for United States shale". Both have rebounded sharply over the past year, helped primarily by a recovery in prices.
The Energy Information Administration (EIA) estimates that United States crude oil production will lift 4.9% to 9.31 mb/d [million barrels per day] in 2017 and a further 7 % next year. "Although OPEC is apparently putting on a renewed push to support values, this looks like the only significant bullish consideration now available to the energy complex", Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates said in a note.
According to some analysts, in the backdrop of the continuing shale development, the USA today is the global swing producer.
"Supplies outside of North America are falling".
According to the Deputy Director of the center for macroeconomic forecasting and investment strategy "Binbank" Natalia Shilova, with the extension of the deal, OPEC can be expected to continue the strengthening of the ruble to the end of the year.