OPEC deal’s 9-month extension enough to reach target
A nine-month extension of the OPEC oil output cut deal will be more than enough to bring stocks down to their five-year average, says an analysis done by the UK-based consulting company Capital Economics.
“Oil prices slumped this week as OPEC announced that it would rollover its current output cuts for another nine months,” said the analysts. “It appears that many in the market had been expecting deeper cuts despite guidance that this was very unlikely.”
In any case, given the seasonal increases in demand in the second half of the year, the company believes that a nine-month extension should be more than enough to bring stocks down to their five-year average.
OPEC held its 172nd meeting on May 25, followed by the 2nd OPEC and non-OPEC ministerial meeting in Vienna, Austria.
OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan have agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.
The reductions will be on the same terms as those agreed in November.
Regarding the effect of the proposed partial sale of US Strategic Petroleum Reserve (SPR) on OPEC deal, the analysts noted that the impact on oil prices from a gradual sell-off of the SPR is likely to be small as commercial stocks are falling.
Capital Economics forecasts the Brent oil prices to stand at $56 and $60 per barrel in the third and fourth quarters of 2017, respectively.
This is while, the prices are expected to reach $62 and $64 per barrel as of the first and second quarters of 2018, respectively, according to the company’s forecasts.