May 24, 2017 / 5:53 PM / 2 months ago

ANALYST VIEW-Oil producers seen likely to extend output cuts

4 Min Read

May 24 (Reuters) - Markets participants expect the Organization of the Petroleum Exporting Countries and other producers will agree to extend output cuts when they meet in Vienna on Thursday.

Under the current agreement that started on Jan. 1, OPEC and other producers including Russia pledged to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.

Ministers said consensus was building before the Vienna meeting for extending cuts by nine months, not just six.

Here are views of the likely ramifications of the expected extension of the cuts:

Bnp Paribas, May 23: More Than an Extension Needed

"Despite a supply cut extension being factored-in by the market, oil prices have made only modest progress. It may take more than an extension to rekindle bullish spirits."

"Perhaps more so than in the recent past, the oil market is data dependent, waiting on the tangible signs of declines in visible oil stocks and exports before buying into OPEC pledges. In turn, OPEC will need to maintain strong compliance to prove effectual in reducing the global oil inventories."

Ocbc Bank, May 22: Rally May Be Capped by u.s. Output

"Should production cuts be enforced by the rest of the OPEC members, it highlights the fact that oil production from OPEC, including Russia, which accounts for roughly 45 percent of global oil production, are in reverse gears.

"With higher prices seen in May, it does suggest that the decision for a production cut extension to end-2017 has been priced-in.

"Even if oil prices rally after the OPEC meeting (especially if the cartel announces deeper production cuts and/or extending its production period beyond 2017), the rally may be effectively capped around its $55-$60/bbl especially when U.S. oil production comes raging back."


"If OPEC cuts production even more, it will likely lose additional market share to U.S. shale and prices may not move up much more.

"Conversely, if OPEC hikes output, oil prices could collapse to $35/bbl, setting the cartel on an even more difficult fiscal path.

"In our view, most OPEC members can not afford either scenario at this point ... we believe that OPEC will stay the course, keeping production on hold over 6 to 9 months and hoping that demand improves."

Goldman Sachs, May 22: Risk of Renewed Surplus Next Year

"A nine-month extension would normalize OECD inventories by early 2018, in our view, but we see risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate."

Standard Chartered, May 22: Stocks at 5-Yr Average by Dec

"While it is possible that some non-OPEC producers may pull out of the deal (and even perhaps that other small producers might join), we expect the broad brushstrokes of the current deal to remain in place after the OPEC meeting.

"We think that if OPEC supply stays at current levels for the rest of the year, global inventories are likely to return to their five-year average in December."

Reporting by Apeksha Nair, Nithin Prasad and Eileen Soreng in Bengaluru; Editing by Edmund Blair

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