OPEC likely to extend output cuts, but price relief elusive

Norway's oil ministry said later on Tuesday it had no plan to join cuts but had a good dialogue with OPEC. Iraq, OPEC's second-largest and fastest-growing oil producer, had until Monday voiced support only for a six-month extension.

Growing macro-stability, driven by the government's policy response package of a flexible exchange rate policy, expenditure cuts, and bank recapitalization-along with tapping into the Reserve Fund-has helped facilitate the adjustment of an economy hit by the double shocks of low oil prices and restricted access to Global financial markets.

Iraq's Oil Minister Jabbar Al-Luaibi said almost all countries participating in the cut had agreed to extend it, though there was no consensus yet on how long the extension should be.

Deutsche Bank said the market had priced in a nine-month extension.

Ecuador Oil Minister Carlos Perez also confirmed that OPEC and other oil-producing countries would discuss a six- or nine-month extension to output cuts and probably choose the latter.

"OPEC has already achieved a lot".

Since the US shale oil boom began at the start of this decade, imports have fallen sharply - sometimes to as low as 7 million bpd, from as high as 10 million bpd in the middle of the last decade. While oil ministers have a sense of defeat in their battle against high inventories, finance ministers are happy, one OPEC delegate said. Both countries were not subject to any limits in the initial six-months, and both have added output and signaled more production growth in the near future. Zanganeh is due in Vienna later on Wednesday. Iran's production has been stagnant in recent months, suggesting limited upside potential at least in the short term.

BMI Research said that the Opec-led cuts would only result in a balanced market this year, and that from 2018 onward markets would return to oversupply, albeit at a lower level than 2013-2016.

Oil's earlier price decline, which started in 2014, forced Russian Federation and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.

Surprises on Thursday are still possible.

By 1340 GMT on Wednesday, Brent crude was trading broadly flat just above $54 a barrel. But it also spurred growth in the United States shale industry, which is not participating in the output deal, thus slowing the market's rebalancing.

80,000 barrels per day isn't much in the grand scheme of things (the petrostate cut plan reduced supply by roughly 1.2 million barrels per day), but it could get worse in the coming months as Iraq's capacity increases.

USA production has risen 850,000 bpd from its 2016 lows to 9.3 million bpd now, not far from the all-time record set in 2015 and just shy of Saudi output levels.

"U.S. gasoline stocks have been a source of concern lately for market bulls as inventories have climbed the last five weeks by 4.5 million barrels, versus an average decline of 4.1 million barrels from 2012-16", Oil Futures Editor Geoffrey Craig said in an emailed report.

  • Zachary Reyes