Turkmenistan might join OPEC oil output cuts: Kuwait

There are near universal expectations that an extension will be negotiated.

The EIA projects that slightly higher annual crude oil prices and OPEC output in 2017 will lead to an increase in OPEC net oil export revenues, which the EIA predicts will grow to $539 billion (nominal) during the year. OPEC will achieve its stated aim of bringing fuel inventories back in line with the five-year average by the end of this year, said Venezuelan Oil Minister Nelson Martinez.

That as folks for some time have been focused on Thursday's meeting of the Organization of the Petroleum Exporting Countries.

Less predictable however is the extent to which this will succeed in boosting the price of crude, particularly with US shale producers back from the dead and pumping at near-record levels.

By June, it is forecast U.S. shale oil producers, who have boosted production 10 per cent since September, will add 5.4 million barrels a day to the market.

"Oil continues higher because of the industry stockpile data and also the fear of being caught too short into the OPEC announcement tomorrow", said Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen.

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) convened in Vienna, Austria, for its third meeting yesterday and recommended for additional nine months production cut extension when the ministers of the member countries meet today (Thursday). "But tomorrow perhaps we have another position", he said. Shortly afterwards, Iran's oil minister indicated his support for a nine-month cut. "We have many options [for discussion] not only for 9 months...but also for the whole of next year", according to Reuters.

The JMMC discussed several scenarios for the cuts before settling on nine months, delegates said.

Citi's analysts believe a six-month extension would be sufficient to tighten oil supplies significantly.

Hopes the oil price might surge past $60 a barrel now appear far-fetched. "It would appear that a six-month extension would be a backtracking of sorts".

Boutarfa said that as stocks were declining, prices could rise to beyond $55 a barrel before the end of the year.

But in the longer term, there are concerns among OPEC countries that higher oil prices may end up being counterproductive as they encourage USA shale gas producers to re-enter the market - a development that could weigh on oil prices.

But the word in most places seems to be that the nine-month extension is nailed on, which means we're likely to see more of the same for the oil price for a while yet.

That's due to US shale producers.

To stop this, analysts at Goldman Sachs and elsewhere suggest the price curve should be pushed into backwardation, where future oil prices are below current ones. Players already on the floor may have to consider which parties cut production, by how much and for how long. While the curbs have succeeded in denting stockpiles in the U.S., inventories still remain above the five-year average while American drillers add more rigs and boost production.

  • Zachary Reyes