OPEC, Russia oil cuts for 2018 hinge on June meeting

By Luke Geiver | December 05, 2017

The Organization of the Petroleum Exporting Countries decision last year to form a declaration of cooperation among members and non-OPEC members to install oil production curtailments will continue for another year. At the 173rd meeting of the Conference of OPEC, Khalid Al-Falih, Saudi Arabia’s minister of energy and president of the OPEC conference, shared the stage with Russian officials in announcing that OPEC and main non-OPEC member Russia would extend production limits for another year, effectively holding back approximately 2 million barrels of oi production per day.

The declaration of cooperation has helped markets recover, Al-Falih said, “many thought it would not materialize.” The design of the agreement was always to accelerate the oil market and to increase the draw on the market’s overstock of oil.

“We are still not where we want to be in inventories reaching their target levels,” Al Falih said. “That is why we are here today.”

Oil markets, along with the global economy, are on the rebound, OPEC noted in it review of the 173rd conference. Global economic growth forecasts have improved since May and the expectation that economies will grow by 3.7 percent in 2018. Global oil demand, OPEC believes, has been robust since May of this year and will rise by at least 1.5 million bopd in 2017 and 2018. Crude stocks held on both land and in floating storage tankers has also significantly fallen since May.

Prior the conference, some oil analysts believed Russia may push OPEC to end the production cuts in June 2018, but the decision was made to issue the cuts for the entire 2018 year. However, OPEC officials did note that they would revisit the cut policy again at the next meeting in June to see how the markets have responded and if there is a way to begin exiting OPEC and Russia out of the production curtailments.

In June 2017, oil prices were trading in the $50/b range. On October 31, Brent crude prices reached $60/b. Prior to the OPEC meeting, prices were trading above $63/b and following the conference, Brent crude is trading just below $62/b.