Major oil traders see high likelihood of output cuts being extended
LONDON (Reuters) – Major oil traders gathered in Switzerland this week said they expected OPEC and nonOPEC producers to extend their pact to curb output in the second half of this year, providing Russia complies.
“I think the surprise so far this year is how quickly shale came back on a relatively modest price rebound,” Gunvor CEO Torbjorn Tornqvist told a panel at the FT Commodities Global Summit in Lausanne.
An unexpectedly quick return of US shale production since OPEC and non-OPEC producers agreed in December to limit oil production has put the brakes on a rebounding oil price. After rallying to above $55 a barrel after the December agreement, crude is now trading at around $51 a barrel.
“Will the agreement hold? By and large, yes. I think the rewards have been there, [the cuts] put a floor to the market,” said Tornqvist.
A committee of ministers from OPEC and non-OPEC members said on Sunday that it had agreed to review whether the global pact to limit supplies should be extended by six months.
The upturn in shale output has also prompted OPEC to engage US producers in talks about how best to tame the global oil glut, although Tornqvist said he did not expect the pace of recovery in shale production to be sustained.
Russell Hardy, Vitol’s chief executive for Europe, Middle East and Africa, said he expected OPEC and non-OPEC members to extend their pact as the market’s cushion of 300 million barrels in stocks has been slow to erode. However, he said it would depend on the oil price at the time of the next OPEC meeting, scheduled for May 25.
“At $50 per barrel there’s a lot of incentive to continue the policy, at $60 per barrel, no. It’ll depend on how fundamentals exert themselves in the second quarter,” Hardy said.
OPEC’s decision will also hinge on whether Russia follows through on its promise to cut production by 300,000 barrel per day by April. While the push for non-OPEC cuts was led by Russian President Vladimir Putin, the producer has been slow to comply.
“Russian compliance hasn’t been 100%,” Marco Dunand, CEO of Mercuria, said. “I think a lot of the onus is on Russia to show that they are serious about this. If Russia comes to the fold with non-OPEC then we’ll see a floor of $60 per barrel.”