Oil Production Cuts Could Resume Next Year: OPEC

Wednesday November 7, 2018

With so many sources forecasting record crude production levels and waning demand in some key geographical regions, it was with a renewed sense of gravitas that the Organization of the Petroleum Exporting Countries (OPEC) on Wednesday once more suggested that a return to production cuts next year is a distinct possibility.

The suggestions were made by two unnamed OPEC delegates who were responding to a report by Russia's TASS news agency that Russia and Saudi Arabia had started discussions over possible curbs in 2019, in order to avoid a supply glut that could send prices plummeting.

Specifically, when asked if OPEC could resume its cutbacks, one of the sources replied, "Certainly not the other way around."

This time, the crude analytical community is taking OPEC more seriously than earlier this year when it was convinced the market was heading toward a calamitous tightening due to the U.S. sanctions against Iran: Bob McNally, president of Rapidan Energy Advisors LLC, said, "The message from OPEC looks like: fasten the seat belts," and that the cartel seems ready to "put pedal to the metal to boost production, and then immediately slams the brakes pretty hard and talks about cutting supply."

Ed Morse, head of commodities at Citigroup Inc., remarked, "They will absolutely want to at some point next year try to arrange a reduction in production.

"Everything points to a fairly weak balance: the world economy is decelerating, the China trade tensions are having a visible impact on demand."

Bloomberg noted that while another reversal in policy from OPEC "would seem to be a far cry from the usual mantra of preserving stability and careful market stewardship...... it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand."

In this new-found atmosphere of worrying about crude surpluses, it was not surprising that Emmanuel Ibe Kachikwu, oil minister for Nigeria, on Wednesday floated the idea that the U.S. sanctions on Iran won't necessarily translate into a global oil shortage.

He reasoned, "This is not the first time Iran has been through sanctions; it might not be that they have the capacity to be able to continue that production" at maximum capacity, but they also won't drop to 30 percent either.

The minister also cautioned against being "deceived into believing" more oil is needed, because it could result in plummeting prices.

Last month Kachikwu said with regards to the possible outcome of the OPEC meeting in December, "I'd be surprised to see anything dramatic: we're likely to push the can forward [as] $70 is the comfort level, for us and for everybody."