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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Opec will need to extend output curbs to sustain oil price recovery

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LONDON: Opec will have to extend its oil output curbs in order to sustain a recovery in prices, as a revival in crude production outside the group may scupper its efforts to erode an overhang of unused inventory, a poll of market analysts showed on Friday.


Six of the 10 analysts polled by Reuters said they believed Opec will extend its output cuts beyond June this year, while two felt the group did not need to extend the deal and a further two were undecided.


“If Opec is genuinely pursuing an inventory target, then an extension to current supply restraint is needed,” BNP Paribas analyst Harry Tchilinguirian said.


“But given recent producer statements suggesting that a rollover of this policy is contingent on cooperation, Opec will face a conundrum as to what to do next when it meets again in May,” Tchilinguirian added.


In its monthly report on Tuesday, the group said oil inventories rose in January despite a global deal to cut supply and raised its forecast of production in 2017 from outside the group, suggesting complications in the effort to clear a glut.


But the group maintained that stockpiles will begin to fall thanks to the supply cut, and added that in the second half of the year “the market is expected to start balancing or even see the start of a drawdown in oil inventories.”


“If the group’s main ambition is to effectively reduce global crude stocks towards their five-years average, then Opec must deepen its cuts and fix a quota for exempted members,” said Intesa Paolo analyst Daniela Corsini.


“Total Opec production should be capped around the current level of about 32.1 million barrels per day, well below the 32.5 mb/d which would balance markets this year. If Opec’s main goal is simply to sustain crude prices above $40-45 then an automatic roll-over of the existing agreement could be enough.”


The Organization of the Petroleum Exporting Countries is curbing its output by about 1.2 million barrels per day (bpd) from January 1, the first cut in eight years. Russia and 10 other non-Opec producers have agreed to jointly cut by an additional 600,000 bpd. — Reuters


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