The cartel of the oil exporting countries (OPEC) and other major producers, including Russia, have decided to extend by nine months the agreement to cut oil production, which would have expired in March 2018. According to the international media, the agreement aimed at stabilizing the international price of the oil barrel would remain valid throughout the year 2018.
The OPEC meeting, held in late November last year in Vienna, decided at the request of Russia that a cut in production could cease earlier if the oil market is overheating. According to Oman’s Oil Minister Mohammed Bin Hamad Al Rumhy, quoted by the Russian media, the signatories of the agreement decided to meet regularly, every two months, to analyse the effects of the agreement on the oil market. Irrespective of the decision to be made within the future meetings, the decision to cease the agreement will not be a sudden one. “When we reach the conclusion that the agreement is no longer necessary, we will do it gradually (the termination – Ed.) … to make sure that we do not shock the market”, Saudi Energy Minister Khalid Al-Falih stated, according to the international media.
A possible review next summer
In turn, the oil ministers of Iraq, Iran and Angola, have declared their preference for a possible review of the agreement within the OPEC meeting in June 2018, but only in the event where the supply is limited in relation to demand. The main parameters that could justify a review of the agreement are either a change in market structure, or a change in prices – Iraqi Oil Minister Jabar Al-Luaibi believes, supported by Iran’s Minister Bijan Zanganeh, who declared himself satisfied with an oil price of USD 60/bbl. According to Kiyoshi Homma, director at the Japanese oil refining company Idemitsu Kosan, oil prices are likely to hover around current levels till next June, when stockpiles would be optimized through continued production cuts, but the market will likely tighten after that, the international media quotes.
The eternal Russian-American equation
Increase in Brent oil prices to more than USD 60/bbl and extending the output cut period could advantage the private U.S. shale oil producers, according to Russian representatives. Even if including the Russian Federation would gain from higher prices, Russia wouldn’t be interested to the same extent in an increase in oil prices as the OPEC leader Saudi Arabia would be, which plans to list on the stock exchange its national state-owned company Aramco in 2018, international analysts believe.