OPEC Meeting Preview: Who's Extending Oil Cuts, Who May Not
Ellen Wald | May 24, 2017 12:00
In anticipation of Thursday’s semiannual OPEC meeting, the following provides a breakdown (by country) of some of the key issues for both OPEC and participating non-OPEC players. The key issues that will be addressed at the meeting are whether countries will agree to extend the existing oil production cut agreement, how many months they will extend it, and whether new countries will join the agreement.
Based on Saudi Arabia’s leadership and the confirmations coming from Saudi oil minister Khalid al-Falih and others, the more barrels per day than permitted) over the first 5 months of the deal. Investors can expect Iraq to continue cheating if the cuts are continued.
Iran: The Iranian oil minister is expected to support the 9-month extension of the OPEC deal as presented. This arrangement preserves the special considerations given to Iran that permits the country to produce almost 4 million bpd at times, as long as its average production over the deal’s timeframe is lower. With President Rouhani’s recent reelection, the democratically elected part of Iran’s government is hoping to attract more foreign investment for Iran’s oil industry. Iran has been seeking foreign investment since sanctions ended, but the restrictions placed by hardline conservatives in the government have scared away many potential investors.
Saudi Arabia: Oil minister Khalid al-Falih continues to exert Saudi Arabia’s power in the oil market to push OPEC and non-OPEC members to agree to a 9-month extension of the current production agreement. However, he has stressed that nothing is final until the meeting and that OPEC is “open for any proposals regarding output cuts.” Traders should not necessarily expect a major bump in prices if all goes as planned at the OPEC meeting. It is highly unlikely that al-Falih will try to gain consensus for deeper production cuts. Saudi Arabia has made significant cuts to its oil production and will likely continue to produce below or at its quota for the duration of the extended deal.
Nigeria and Libya: If all goes as planned, both Nigeria and Libya will continue to be exempt from any production cuts or quotas for the next 9 months. oil production has also risen in recent weeks as its fields recover from after a long period of instability.
Algeria, Angola, Ecuador, Gabon, Kuwait, Qatar, UAE: These OPEC countries will continue to participate in the production cuts and follow Saudi Arabia’s lead in supporting a 9-month extension.
Venezuela: President Maduro was an sabotaging energy-related installations belonging to the country’s state oil company (PDVSA).
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Equatorial Guinea: This African country has been seeking to join OPEC since 2009 and, with S&P Global Platts , Russia’s compliance with its 300k bpd reduction has been inconsistent. OPEC is likely to overlook Russia’s compliance issues in favor of a wider consensus, but investors should be aware that Russian compliance, along with non-OPEC compliance as a whole, will be questionable for the duration of the agreement.
Kazakhstan: This central Asian republic production online from its Kashagan oil field. Kazakhstan says its commitments to investors in this oil field make further production cuts impossible. However, the country is sending representatives to the OPEC meeting, so it is possible that Kazakhstan may agree to continue to participate in some form.
Mexico: Mexico announced on Monday that it would support the 9-month extension plan, although the country continues to invite private domestic and foreign investment into its oil industry to revive lagging production.
Oman: Oman originally backed an extension of the agreement for another announced that after “some discussion” at the meeting, would not be opposed to a 9-month extension.
Unnamed countries: Khalid al-Falih said that additional “small” oil producing countries have indicated willingness to participate in the production cuts. It is unclear who these countries are, however confirmed that the country has no plans to attend the meeting or join in the production cuts.
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