Will OPEC+ Extend the Cuts?

Will OPEC+ Extend the Cuts?
Analysts give their take on whether or not OPEC+'s production cuts will be extended.

OPEC+ will, at the very least, extend production curbs beyond the March 2020 deadline.

That’s according to Stephen Brennock, an oil analyst at PVM Oil Associates, who said failure to do so would send oil prices “plunging into the abyss” and is not in line with the group’s “long-held commitment to stabilize the oil market”.

Fitch Solutions also believes that the OPEC+ output cuts will be extended past March 2020, according to Peter Lee, a senior oil and gas analyst at the company.

“The house view is for the cuts to be extended further through to the end of 2020,” Lee told Rigzone.

“We do not see sufficient support forming for prices from either the supply or the demand side over the coming quarters which would prompt OPEC+ to reconsider its current stance on output cuts/market management,” Lee added.

According to Abhishek Kumar, head of analytics at Interfax Energy in London, Saudi Arabia and its Gulf allies will push for an extension covering the whole of 2020, but an extension of another six months beyond the first quarter of 2020 “is more realistic”.

Muktadir Ur Rahman, the director of Apex Consulting Ltd, told Rigzone that OPEC may decide to extend the current agreed production quota beyond March 2020, but added that it is too early to make a call on this at the moment.

“It has more than 5.5 months between now and [the] March 2020 deadline and a lot can change in that time, both in terms of global economic outlook and geopolitics,” Rahman told Rigzone.

“Therefore, our current base assumption is that OPEC will, most likely, maintain its current production agreement at its December meeting, especially given the demand and supply challenges that the oil market is facing currently,” he added.

Cuts Need to be Extended

OPEC+ cuts will need to be extended through 2020 just to keep the market in balance, according to a research note sent to Rigzone in July by Jefferies.

“The decline in non-US, non-OPEC supply that we had expected to see after the 2014 price crash has simply not materialized and non-US, non-OPEC growth should reach its highest level in 15 years in 2020,” Jefferies analysts stated in the research note.

“U.S. growth could decelerate in 2020, but we still expect total liquids to be up 1.2 million barrels per day,” the analysts added.

In September, Rystad Energy outlined that a balanced oil market in 2020 is contingent on three “pillars”, including continued OPEC output cuts.


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