Is OPEC oil cut deal extension beyond March 2018 likely? No one knows for sure. But we know three key reasons why the extension might take place.
8 September, AtoZForex – Earlier this week, the Oil Minister of Russia, Alexandr Novak has stated that his country and Saudi Arabia have discussed an extension of the current oil cut deal between the Organization of the Petroleum Exporting Countries (OPEC) and other non – OPEC oil producers.
Is OPEC oil cut deal extension beyond March 2018 likely?
Reportedly, there is no final decision yet on an extension of the deal beyond its expiry in March 2018. Mr. Novak has called this idea ‘just an option.’ Mr. Novak is the second top Russian oil official to hint at the idea of an extension to the OPEC oil cut deal. According to the Russia’s Deputy Prime Minister Arkady Dvorkovich’s remarks on the 2nd September:
“The most likely outcome is that the deal will be extended.”
Yet, he stated that the nations will decide on this during the next ministerial meeting of OPEC and other oil producers.
Aside from the Russian oil officials, other countries also signaled their preparedness to further extend the deal. Oil ministers from Iraq and Iran have stated almost the same thing. The officials were stating “all options on the table” and “we will discuss it on Nov. 30 and come out with a decision if there is a need.”
Three key reasons for OPEC oil cut deal extension
Even though the oil producers do not provide the exact answer for OPEC oil cut deal extension beyond March 2018 possibility, some industry experts believe that this option can easily become a reality. There are several reasons for that.
Reason #1 for OPEC deal extension: High oil inventories
First of all, the global oil inventories are still high and the compliance within the deal doesn’t reach 100 percent. According to the majority of the analysts, oil inventories in the Organisation for Economic Co-operation and Development (OECD) stand between 200 and 250 million barrels above their five-year average as of June.
Reason #2 for OPEC deal extension: Hurricane season damage
The second reason is the unexpected damage from the hurricane season in the US. The tropical Hurricane Harvey will most certainly complicate matters for OPEC. Due to the multiple shutdowns of refineries in the US, markets expect the crude inventories to rise by another 40 million barrels. This might delay the efforts of OPEC for another month.
Reason #3 for OPEC deal extension: Floor for oil prices
Market analysts believe that OPEC and other oil producing nations need a floor for oil prices. OPEC oil cut deal extension provides exactly this. Oil nations have realized that they are not able to reach the oil prices goal of $50-60. Nevertheless, some analysts suggested that the aim can be achieved by the end of the year.
Yet, many believe that the deal can only set the floor of $45-50 to oil prices and the ceiling is up to the market. Moreover, experts think that the deal can ensure that the oil prices will not fall below this level.
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