Today OPEC is discussing the possible prolongation of its oil cut agreement. What does this mean for the crude?
The most optimistic scenario, the extension for 9 months till the end of 2018, is already fully priced in. But the odds are this will not happen. Yesterday, Russia and Saudi Arabia reached a consensus but did not deliver the details. One of the stumbling blocks is Moscow. The big Russian oil corporations made their ambitious plans and they do not want to postpone its realization. Especially, when the USA is ramping up the shale oil extraction.
Another option is the extension of the agreement by 6 or 3 months (not by 9). Saudi Arabia’s energy minister told today that they expected everyone to implement output cut extension. The Kingdom is a ‘big fish’ in oil production, and its opinion is of key importance, but, considering the relatively high oil prices, some of the exporters may vote for shorter terms of the extension, hoping that the market will find the balance sometime earlier during 2018.
Nigeria and Libya have been exempt from the cuts, but their participation in 'the common cause' is now a distinct possibility.
The talks are continuing. The worst scenario the cartel may offer is 'no deal'. In case of any disagreement among the members, they will have to postpone the decision until the next quarter. This would not only bring disappointment to the markets but reinforce the uncertainty in the commodity-related area. In this case, Brent will fall below the $60 per barrel level.
The most optimistic scenario, the extension for 9 months till the end of 2018, is already fully priced in. But the odds are this will not happen. Yesterday, Russia and Saudi Arabia reached a consensus but did not deliver the details. One of the stumbling blocks is Moscow. The big Russian oil corporations made their ambitious plans and they do not want to postpone its realization. Especially, when the USA is ramping up the shale oil extraction.
Another option is the extension of the agreement by 6 or 3 months (not by 9). Saudi Arabia’s energy minister told today that they expected everyone to implement output cut extension. The Kingdom is a ‘big fish’ in oil production, and its opinion is of key importance, but, considering the relatively high oil prices, some of the exporters may vote for shorter terms of the extension, hoping that the market will find the balance sometime earlier during 2018.
Nigeria and Libya have been exempt from the cuts, but their participation in 'the common cause' is now a distinct possibility.
The talks are continuing. The worst scenario the cartel may offer is 'no deal'. In case of any disagreement among the members, they will have to postpone the decision until the next quarter. This would not only bring disappointment to the markets but reinforce the uncertainty in the commodity-related area. In this case, Brent will fall below the $60 per barrel level.