OPEC producers discuss deal: extension likely but little price effect
On Thursday, top officials from OPEC and 11 non-OPEC countries, most notably Russia, will meet in Vienna to hash out a deal that extends an oil production freeze deal.
Agreed to last November, the deal aimed to cut production to boost flagging oil prices. While the implementation of these cuts has been an unbridled success, their impact on the oil price—currently hovering around $50 a barrel—leaves much to be desired.
While a deal extension is almost guaranteed, there’s been some suggestion that officials might seek to cut production figures even further in a bid to support prices.
But even if OPEC does extend or even deepen production cuts, oil is unlikely to climb much further than $60 a barrel. This is partly because the market has already factored in a nine-month extension, partly because global demand is weak, but mostly because of shale oil.
As shale wells require relatively little upfront investment and can be drilled quickly, they’re able to respond to market prices quickly. This means that, if OPEC countries bite the bullet and decide to produce less oil, shale producers are waiting in the wings to take advantage of the increased price and lift their own production—effectively nullifying OPEC’s efforts and keeping oil prices down.
