EMEA News
More Rumours of OPEC Agreeing to Extension Mitigated by Goldman Sachs Warning of 2018 Glut Resumption
The prospect of the Organization of the Petroleum Exporting Countries (OPEC) extending its cutback initiative to nine months came one step closer on Tuesday with positive comments from Algeria, but as the focus on the cartel's official meeting in Vienna on Thursday assumes razor-sharp focus, yet another expert offers compelling evidence that the global glut will continue.
Goldman Sachs in a new report says while a nine-month extension would normalize inventories by early 2018, "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."
In short, any extension is merely a band-aid solution to the bigger problem of Russia and a host of other member and non-member countries who have publicly declared their intention to pump all-out once the cutbacks are finally over with.
Indeed, Igor Sechin, chief executive for Rosneft, told reporters last week that his company has focused its cuts on newer fields and won't cut production on mature fields (which are harder to restart), in preparation to resume full production once the OPEC cuts end.
Meanwhile, producing countries that have as yet been largely overlooked by the media are now voicing their opposition to any OPEC cuts, case in point, Norway, whose oil and energy ministry on Tuesday stated, "The ministry has a good dialogue with other countries about the oil market; we are not in a situation in which regulating production is on the agenda for Norway."
Norway joins Nigeria, Iran, and other nations who have outright refused to play along with the cutbacks.
Goldman went on to note that sustained backwardation in prices will help avoid a boom-bust cycle, and costs will "also play a role in setting shale's growth path - but we do not forecast sufficient inflation at this point to achieve the required slowdown next year."
The bank concluded, "In the current environment, we believe that the largest imbalance is the potential for a large surplus in 2018, leaving low deferred prices to resolve this credible threat."
But none of this presumably cooled the optimism of Noureddine Boutarfa, energy minister for Algeria - at least not enough to prevent him on Tuesday from telling reporters that OPEC and its allies are close to an agreement to extend their cuts: "At this moment, I think we have an agreement do nine months; but tomorrow perhaps we'll have another proposition."
Suhail Al Mazrouei, energy minister for the United Arab Emirates, was equally upbeat: he said the deal to date "has been working and I know it will work even better for the second half.
"We need to give the market some more time."
For all the positive rumours spread on Tuesday, entirely absent was any mention of deeper cuts accompanying the extension, which experts like Gene McGillian, VP of market research at Tradition Energy, insist is vital if OPEC is to make any headway against planned increases of production by other nations.
