OPEC extends oil production cut to end-2018, likely to cut production by 600k b/d – Nordea Bank

During its meeting yesterday, the OPEC members agreed to extend the oil production cuts by nine months to the end of next year, as was expected widely. The OPEC production target was set at 32.5 million barrels per day in November 2016.

Yesterday’s decision by OPEC to extend price-boosting output cuts was greatly anticipated and nearly all producers have agreed on the requirement to keep policy despite rising hostility between the OPEC members after the Qatar-gulf crisis this summer. The biggest concern before the meeting was Russia’s commitment to an extension of production cut. The oil companies in Russia are exerting pressure on the Russian energy minister to permit them to bring new production on line.

However, the differences with Russia are likely to be solved and the ten non-OPEC members are will continue to underpin OPEC’s attempts to balance the market and lower inventories, noted Nordea Bank in a research report.

“We expect they will agree to cut production by 600k b/d to the end of 2018, with Russia accounting for half of this. The total production cut by OPEC and non-OPEC would then be around 1.8m b/d”, stated Nordea Bank.

Commercial inventories of OECD dropped below the symbolic 3000 million per barrel mark at the end of September for the first time since November 2015, reaching 2,970 million barrel, showed IEA figures.

The coalition of OPEC and non-OPEC members appears to be dedicated to fulfill its commitment to balance the market. The rates of compliance with the agreed rate cuts have been high for both OPEC and the ten non-OPEC producers, showed IEA.

The energy minister of Saudi Arabia stated that OPEC would be wary in raising production again when the extension ends as the group would be careful about building inventories that might push prices considerably lower. In particular, the predictions of a sharp rise in the U.S. shale production next year might offset the OPEC’s attempts to bring global inventories down to pre-oil crisis level, added Nordea Bank.

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