Over the weekend, OPEC and its allies will convene in Oman to discuss oil production cuts designed to decrease market oversupply.
OPEC and a number of non-OPEC countries, including Russia, cut a deal in November 2016 aimed at decreasing global oil production by 2 percent. The initiative has been successful at reducing supply and boosting prices, and the group recently extended cuts until the end of 2018.
However, recent circumstances have some market watchers thinking that OPEC may end its cuts early on the back of rising prices.
In its latest monthly report, released on Thursday (January 18), OPEC revealed that with oil prices on the rise it expects production from its rivals to increase. It sees oil supply from non-member countries reaching 1.15 million barrels per day in 2018, up from its previous forecast of 990,000 barrels per day.
In particular, producers in the US have been amping up their output and will likely continue to do so, essentially wrecking the work OPEC has done to this point. “There is an unintended consequence from this higher price,” Ed Morse, head of commodities research at Citigroup (NYSE:C), told Bloomberg. “OPEC are fearful of not only the shale response, but of deep water and of oil sands from Canada.”
When OPEC meets this weekend, it plans to examine the current deal and discuss if changes need to be made. The ultimate goal of the group’s output cuts is to bring commercial stockpile levels for Organization for Economic Co-operation and Development countries back to their five-year average.
While changes are not expected to take place during this weekend’s meeting, there is increased speculation that OPEC will form an early exit strategy from the current deal during its meeting in June.
As of Friday (January 19) at 1:35 p.m. EST, oil prices were down, sitting at $63.35 per barrel.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.