Last week, oil producers in Kuwait discussed OPEC’s November production cut deal extension. With US shale production offsetting OPEC’s cuts, the deal so far has failed to prop oil prices to $60. Before the deal expires in June, OPEC will meet again in May in Vienna to determine whether to extend the deal.
Will the deal extension happen?
OPEC has proposed that the deal will most likely be extended if the global crude oil inventories remain above the five-year average. With current stockpiles exceeding the average by around 286mn barrels(EIA report), the possibility of deal extension remains high. But this extension is threatened by various factors, including growing frustration in Saudi Arabia about shouldering the supply cut responsibility alone, as also the increasing reluctance of Iraq, OPEC’s second-largest producer, to comply with / extend the cuts.
If it does, will it help boost oil prices?
November deal compliance was very high, but going forward, growing fear among OPEC members about losing market share from production cuts could impact compliance. Supply threat from non-OPEC members like Canada and Brazil remains, they have not yet consented to cuts. Non-compliance of production cuts and supply glut threat from non-members could nullify any benefits to oil prices from the deal extension.A downward threat to prices remains despite deal extension.
OPEC faces a tough dilemma indeed, not extending the deal will crush oil prices whereas deal extension will threaten loss of market share. It’s a wait and watch, as struggle for global oil dominance continues between the US and OPEC nations.