Oil Producers discuss extending cutbacks beyond March 2018

Oil Producers discuss extending cutbacks beyond March 2018

Today, representatives from OPEC’s 14 member states will meet with Russia and nine other oil-producing nations to negotiate an extension

Russia_oil_refinery

Photo: Bloomberg News/Andrey Rudakov

Today, representatives from OPEC’s 14 member states will meet with Russia and nine other oil-producing nations to negotiate an extension of output cuts beyond March 2018.

After the price of oil tumbled to $27 a barrel in 2016, OPEC and non-OPEC states—constituting 60% of global production—agreed to reduce output by a cumulative 2%. Today, the price of Brent crude sits above $60 a barrel.

Saudi Arabia has been an active proponent of extending the deal, with higher prices favourable for Saudi Aramco’s planned IPO. Reports suggest OPEC is unified in favour of an extension, but backing from Moscow is less than certain.

Russia is far less dependent on high prices, with budgeting based on $40 a barrel. Wary that squeezing the market too long could trigger another price collapse and under pressure from domestic producers to end restrictions, the Kremlin is likely to advocate delaying a decision until May 2018.

If an agreement is reached, expect cuts to be linked to global stockpiles, creating a mechanism for states to increase production as demand increases.

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