The Organization of the Petroleum Exporting Countries (OPEC) is considering extending production cuts to the second half of next year, sources familiar with the matter said.
Last year, the cartel agreed to curb production for the first time in eight years in order to reduce the global oil supply glut. In May, the historic deal to cut output by a total of 1.8 million barrels per day was extended until April 2018.
Despite those efforts, oil prices have struggled to break the $50-per-barrel mark due to an increase in US shale production. For that reason, OPEC is now discussing the potential to extend production even after its deal expires in April.
“It is clear the rebalancing process is under way, supported by the high conformity levels of OPEC member countries and participating non OPEC countries,” OPEC Secretary-General Mohammad Barkindo said on Monday (September 11).
OPEC believes a rebound in demand of close to 2 million barrels a day in the second half of 2017 will help reduce excess oil supply. The cartel now believes the world will consume 96.77 million barrels a day this year and 98.12 million barrels a day in 2018.
“This boost in demand will contribute to further reductions in commercial inventories,” Barkindo added. Ministers are now discussing extending the supply cut for at least three more months beyond March 2018 in order to allow the market to continue balancing.
In August, OPEC recorded reduced output for the first time since March. The 14-member cartel pumped out 32.76 million barrels a day last month, according to independent sources that monitor OPEC’s production. That marks a drop of 79,100 barrels a day from July.
If OPEC keeps pumping at August’s rate, the market will see a small supply deficit next year instead of the 450,000-barrel-per-day surplus implied by last month’s report. “We think there will be plenty of oil in 2018 with the need for OPEC to hold cuts through all of next year,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.
On Tuesday (September 12), October West Texas Intermediate crude was up 0.4 percent, at $48.26, on the New York Mercantile Exchange, while Brent crude for November delivery on London’s ICE Futures Exchange added 0.7 percent to hit $54.22.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.