OPEC's output cuts extension

27 November, 2017

The oil market will be in focus in the next few days as the Organization of the Petroleum Exporting Countries and a group of independent producers gather to discuss a potential extension of the so-called production cuts agreement.

The meeting will take place in Vienna on November 30 and expectations are currently pointing to an extension, but doubts remain on how long it will last after the March deadline.

Reports said OPEC’s de facto leader Saudi Arabia is looking ahead to a nine-month extension until the end of 2018. Russia is allegedly OK with that alternative.

On Friday, Russian Energy Minister Alexander Novak said that his country is ready to move forward with the details of the global pact, although no comments were made on its duration.

“We see that 50 percent of oil stockpiles have been removed, the oil price has reached its balance, [...] However, the targets on rebalancing the market have not been reached.”

“Everyone supports the extension, so that the targets are finally reached,” added Novak, warning that “different options are under consideration”.

Speculation is also building up about the volume of crude reductions. Despite being extended earlier this year for a nine-month period, the agreement kept its original target of cuts at 1.8 million barrels per day, which was a big disappointment for market players at first.

International Brent crude price has risen above $63 per barrel last week, a level not seen for almost two years. Quotes have been boosted by speculation that the oil cartel will extend cuts.

However, the current prices could have assimilated an extension of output cuts, which would open the door to a potential downturn in case the decision is finally confirmed.

For such reason, the focus will fall into details of the agreement, meaning duration and volume. Those factors seem to be the key to determine the direction of benchmarks in the near future.

As usual, we recommend to stay calm until a decision is made and only open positions once a direction is clearly defined. OPEC’s deal extension could increase volatility significantly.

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