Opec may end cuts early as prices hit new high, say experts
RIYADH, January 20, 2018
As oil trades near a three-year high and crude stockpiles fall rapidly, analysts are questioning whether the Organization of Petroleum Exporting Countries (Opec)-led production cuts will last until the end of the year.
As the producer group gears up for a meeting with its partners to review strategy in Muscat, Oman, this weekend, there are growing expectations that the deal will be phased out early, reported Bloomberg.
The "probability is growing" that the accord may conclude before the end of the year, said Harry Tchilinguirian, BNP Paribas SA’s head of commodity strategy. Discussions around an early exit are likely to emerge at the next Opec meeting in June, he said.
"If Brent is still trading around $60 a barrel and oil inventories are close enough to Opec’s five-year average," the deal may be phased out informally by nations gradually weakening their compliance with production cuts, Tchilinguirian said.
It would be "prudent" to expect Opec members will start cheating given higher oil prices, said Energy Aspects Ltd.’s chief oil analyst Amrita Sen.
Other analysts predict a more formalized unwinding of the cuts.
"I don’t think the deal per se will end" as inventories near the five-year average, said Bjarne Schieldrop, chief commodity analyst at SEB AB.
The Declaration of Cooperation -- the 2016 accord that first established the group of 24 oil producers-- will still stand, but be modified to allow for production cuts to gradually unwind from mid-2018, he said.
