The possibility of extending the cuts through end 2018 has been discussed before, and OPEC has been saying for quite some time that OPEC would be willing to do “whatever it takes” to balance the oil market.
Still, OPEC has been reluctant to commit to anything beyond the existing agreement, which holds production at 32.5 million bpd for OPEC members—a 1.2-million bpd decrease from production levels in October 2016.
OPEC is now tasked with managing expectations—something it failed to do in May when it decided to extend the original deadline for the cuts through March 2018. At that time, the market was expecting—or rather hoping for—not only an extension, but a deepening of the cuts, and when the deepening didn’t materialize, the mere extension failed to impress the market, and therefore failed to lift the price of oil.
Iran, for one, is on board with an extension, but it’s hardly too much skin off their nose, as under the current deal, Iran is capped at a figure higher than its October production, as its astute negotiations allowed it to recover at least to some extent its oil production that had been stifled due to sanctions.
While Iran’s support of the deal is helpful, the real heavyweights—Saudi Arabia and Russia—serve as the backbone of the deal, and their buy in is crucial.
Three of the four sources added that the pushback until end 2018 is the likely outcome—the third reportedly merely said that a six- to nine-month extension would be necessary to deplete the current overhang.
But the word on the street that OPEC is favoring a second extension to the agreement is tempered somewhat, according to sources, who say that the decision on whether to extend may not take place in November 2017 as many had thought; the decision may be waylaid until early 2018, supported by the stronger demand growth for oil.
As for a deepening of the cuts—something the market would rejoice over—this is unlikely, Reuters sources said, because some of the necessary players would be unable to reduce production further.
“My belief is that the ministers will renew until stocks go back to normal,” one of the sources said.