Optimism for OPEC Cutback Extension Nears Fever Pitch, But Russia Warns It's Not a Done Deal

Some analysts are making safe bets about market performance moving into 2018. File Image / Pixabay

As the countdown begins to the November meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC), expectations that the cartel will extend its production cutback initiative through to the end of 2018 is rising to fever pitch, with Bob Yawger, director of the futures division at Mizuho Securities USA Inc., telling media that "OPEC chatter also sounds like both the Saudis and Kuwait are both game for extending the deal sooner rather than later."

To which Andrew Lebow, senior partner at Commodity Research Group, added in reference to the enthusiasm generating two year price highs for crude on Friday, "We've made a new high and the fundamentals have finally improved."

It seems nothing will derail the analytical enthusiasm for OPEC's effect on the market that has been growing over the past month, not even the wet towel thrown by Alexander Novak, energy minister for Russia, who this week said an extension was being discussed but a decision would not necessarily to be taken later this month.

He told reporters, "We're ready to discuss the topic and if need be we're ready to consider an extension, but we would need to analyze a lot of data in order to understand the picture at the time of taking this decision, and so this is why we believe it could be taken at a later date."

He added, "If we see that the market is not balancing then we'll do it.

"I can give you a more specific answer if you can find me any person now who can say what the market will look like in five months: if you find a person like this, I will shake his hand."

Amid the near celebratory analytical sentiment comes safe predictions such as those made by Eldar Saetre, CEO of Statoil, who covered all bases by telling Bloomberg television on Friday that "we see volatility going forward," but "the market is definitely rebalancing, that is something we've been seeing for quite a few months now...and this [also] defines very much where we're heading doing forward."

There may even be good news coming from Venezuela in the foreseeable future - at least, better news than the widespread predictions this week that it will default on its debt obligations, thus triggering complete economic collapse.

Nicolas Maduro, the republic's president, has demanded to renegotiate its debt load, which experts say may be a bid to reassure the countries that are his biggest lenders and the most valued customers of his oil industry.

Thomas Onley, an analyst at consultant Facts Global Energy, remarked, "Venezuela is too important for the likes of China and Russia to let it fail; things are getting tough, no question about that, but China and Russia are the backstop."

The sheer volume of opinions about the crude market may be headache-inducing, but one thing seems certain: whatever happens, resourceful production majors will likely profit from it.

That was made clear earlier this week by Brian Gilvary, chief financial officer for BP, who, in predicting that prices next year will hover between $50-$55, noted that his company will be able to generate a profit under those conditions, even perhaps if oil dips to $45.