Are Extended Oil Production Cuts Assured? 4 Key Questions Remain
Ellen Wald | May 17, 2017 10:05
The oil market received a fairly significant recently as April 2017 .
Now the two most significant oil producers in the production cut deal appear to be in agreement, ten days before OPEC’s regular meeting in Vienna. It seems that an extension of the production cut agreement is practically assured.
The significant remaining questions are:
Most OPEC countries will be on board with extending the production cuts into the first quarter of 2018. Iraq, which has made no secret of its desire for an exemption from the production cuts, finally announced, on May 11, that it would support extending the cuts for an additional six months. Iraq might be tough to sell on the additional three months, but will likely acquiesce.
Iran, which opposed last November’s OPEC production cut deal until it received a special exemption, is fall even more in May.
Surprisingly, the non-OPEC country of Kazakhstan has emerged as the only significant opposition to the nine-month production cut extension, saying that it Turkmenistan has indicated an interest in joining the cuts. More participating countries will help the group.
h3 3. How will this affect the shale oil industry in the U.S.?/h3Further production cuts by OPEC and other oil producers will continue to encourage U.S. shale producers and, more importantly, those who continue to loan them capital. Higher U.S. production will exert downward pressure on oil prices. The most recent EIA shale oil productivity report shows that shale oil production production problems are exacerbated or production ceases altogether, this could decrease the incentives for deal participants to continue their own cuts. On the other hand, if deal participants continue to abide by the agreed upon cuts and Venezuela’s production drops due to instability, then the impact on global oversupply would be significant and prices would rise accordingly.
Despite the events in Venezuela, it does not appear that that country’s instability has been priced into the oil market. If unrest continues the market will have to take note and price will rise.
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