Both WTI and RBOB prices are tumbling this morning after OPEC member agree to limit oil output through the end of 2018. While this is bullishly longer-than-expected (6-9mo was expected), OPEC members now rely on Russia to agree to these terms, and it appears the market is questioning that. Furthermore, despite US shale output at record highs, Saudi officials are shrugging off any impact.
As The Wall Street Journal reports, OPEC members agreed in principle Thursday to keep limiting their output through the end of 2018, according to people familiar with the matter, providing assurance for an oil industry still struggling through a fragile recovery.
The accord signals that the world’s biggest oil-producing countries believe that a global oversupply of oil is still weighing down oil prices, even a year after they struck their first agreement to cut crude production. Oil in storage—a proxy for the global glut—remains well above historical averages, national oil ministers said.
Any agreement OPEC strikes will be contingent on support from a group of producers outside the cartel led by Russia, which pumps more crude than any country in the world. The Russia-led delegations are meeting with OPEC to hash out a final agreement.
It appears the market is questioning Russia's acquiescence...
As one wonders ho3w much longer Russia will allow this...
But the Saudis do not appear to be woried... (as WSJ notes), overshadowing Thursday’s event are American shale producers, whose techniques allow faster increasing and decreasing of production with the direction of oil prices.
Some big oil producers have expressed concern that OPEC could overstimulate the oil market with production cuts that are too deep for too long, pumping prices high enough for shale to flood the market.
U.S. production is expected to reach a record of about 10 million barrels a day this year, according to the U.S. Energy Information Administration.
Mr. Falih said he wasn’t worried about shale producers flooding the market again. “Global demand will absorb shale,” he said.
Notably, as Reuters reports, Non-OPEC Russia, which this year reduced production significantly with OPEC for the first time, has been pushing for a clear message on how to exit the cuts so the market doesn’t flip into a deficit too soon, prices don’t rally too fast and rival U.S. shale firms don’t boost output further.
Before the earlier, OPEC-only meeting started at the group’s headquarters in Vienna on Thursday, Saudi Energy Minister Khalid al-Falih said it was premature to talk about exiting the cuts at least for a couple of quarters and added that the group would examine progress at its next meeting in June.
“When we get to an exit, we are going to do it very gradually ... to make sure we don’t shock the market,” he said.