OPEC and its allies will convene in June to discuss extending their oil cooperation deal for several more years in an attempt to avoid major market shocks.
An extension of the original agreement to cut oil production is supported by leaders of the United Arab Emirates (UAE), Saudi Arabia, which is OPEC’s biggest producer, and non-OPEC member Russia.
Suhail al-Mazroui, OPEC’s president this year, told Reuters on Tuesday (February 20) that he believes the June meeting in Vienna will be the most opportune time to discuss the plan to extend cooperation, as non-OPEC producers participating in the supply-reduction agreement are expected to attend.
“I think the potential is huge for cooperation, whether it is focused on the oil sector, or the broader energy sector,” Mazroui said in an interview in London.
While it is too early to know how cooperation will work and whether oil production management will be maintained, Mazroui believes that market monitoring is the bare minimum the group does to help avoid gluts or shortages.
He said, “[i]f this group continued to work together … that will enable the world economy to benefit and to grow and we could plan on avoiding any major surprises to the supply and demand imbalance.”
Mazroui also acknowledged that after about four years of surplus, the global market will finally rebalance in the second or third quarter of this year, which is earlier than previously estimated. He commented that the market saw “a remarkable year in 2017 — the market of crude has been restored and went to healthy numbers. Ahead of us this year is the balance of supply and demand.”
As anticipation of an extension to the supply cuts rises, some analysts now believe that OPEC and Russia are essentially creating a wider “super group” of sorts, with Moscow becoming a near-permanent OPEC member. Mazroui has said “the name isn’t important.”
To date, OPEC has delivered more than 100 percent of the output cuts that members pledged under the original deal. While the UAE’s compliance has been lower (as it uses a higher baseline than the one outlined in the agreement), Mazroui expects it to exceed its oil production cut target in Q1 of this year.
As of Wednesday (February 21) at 10:00 a.m. EST oil was down, sitting at $61.54 per barrel.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.