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How Long Can OPEC Extend the Production Cuts?

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OPEC’s meeting 

OPEC’s meeting will be held in Vienna on November 30, 2017. Crude oil (BNO) (DBO) (SCO) prices have risen 23% since September 2017 partially due to optimism about extending the production cuts beyond March 2018. Reuters and Bloomberg sources suggest that OPEC might extend the production cuts for nine more months. 

Russia and Saudi Arabia are significant contributors to the current output cuts. They have signaled their support for extending the pact. The production cuts have helped bring down global oil inventories.

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OPEC’s production cut plans

On November 27, 2017, OPEC’s working committee said that the global crude oil market would rebalance by June 2018. It indicates that OPEC needs to extend the current production cuts. Longer-than-expected production cuts are bullish for oil (BNO) (USL) prices. It also benefits oil producers (IEO) (FXN) (FENY) like Noble Energy (NBL), Devon Energy (DVN), Goodrich Petroleum (GDP), and EOG Resources (EOG).

Goldman Sachs’ view on OPEC’s meeting 

On November 27, 2017, Goldman Sachs suggested that OPEC’s meeting isn’t certain. Traders aren’t sure whether OPEC will extend the production cuts. The lack of a consensus on the production cut extension and uncertainty in oil market rebalancing weighed on oil (USO) (UCO) prices.

Impact 

Saudi Arabia is trying for a smooth exit from ongoing output cuts, which could prevent any excess oil coming back into the market. Longer or deeper output cuts could benefit oil (UWT) (DWT) prices. Any delay in prolonging the production cuts would weigh on oil prices.

Next, we’ll discuss crude oil price forecasts.

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