OPEC in June to consider way out of production deal

It will take a slow, deliberate and cautious strategy to unravel the multiplayer deal in order to prevent a major market shock, analyst says.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  Dec. 11, 2017 at 9:30 AM
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Dec. 11 (UPI) -- A decision to start reviewing the way out of an OPEC-led agreement on oil production cuts doesn't mean the deal is over, an analyst said Monday.

The Organization of Petroleum Exporting Countries, with the help of major oil producers like Russia, agreed in late November to extend a production cut agreement until the end of next year. The deal, coordinated a year ago and implemented in January, aims to drain the surplus on the five-year average in crude oil inventories by sidelining about 2 percent of global demand for oil.

Bloomberg News and others quoted Suhail al-Mazrouei, the energy minister for the United Arab Emirates, as saying parties to the deal will meet in the summer to discuss the way out.

"We will meet in June, and hopefully the market will be in a much better condition for us to come and announce an exit strategy," he was quoted as saying.

Vandana Hari, a market analyst and founder of Vanda Insights, said not to read too much into the statements considering how long it would take to coordinate an agreement involving so many players. Any agreement on an exit door would have to be gradual and conducted with a degree of caution given the potential impact on the price for crude oil.

"We have heard before that an 'exit strategy' could take up to six months to formulate, so starting to discuss it in June makes sense," she told UPI. "The producers want to start talking in June, not start exiting the agreement in June -- it's an important distinction."

Russian Energy Minister Alexander Novak told Austria's Die Presse newspaper in September that a shorter extension may be preferred over a full-year consideration because of supply and demand dynamics.

"It's better to end the agreement during the growing demand period," he was quoted as saying. "It usually takes place in summer. When the demand will grow, everyone should gradually withdraw from the agreement."

Demand usually softens during the waning months of the year in part because of smaller drains from the transportation sector, which usually draws most from the energy sector.

Hari said there's "nothing new," though, on the remarks about an exit strategy so the Emirati announcement likely won't have a big market impact.

The price for Brent crude oil, the global benchmark, was moving between slight gains and losses in early Monday trading near the $63 per barrel mark. The OPEC-led effort has been credited with setting a $50 floor under the price of oil.

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