The Organization of Petroleum Exporting Countries (OPEC) along with its allies have planned to finish their oil supply cuts by March 2018.
However, oil prices are still low, while the latest data from the International Energy Agency)IEA) suggests not a promising scenario. The IEA research showed that that global oil inventories could remain oversupplied even by the end of 2018.
The head of IEA’s oil markets and industry division, Neil Atkinson, has stated: “They’re going to have to dig in for the long haul. Re-balancing is a stubborn process.”
Oil prices have dropped 10 percent in London so far this year. The production cuts from the number of oil nations did not succeed to disperse a world surplus.
Meanwhile, the oil producers will meet this November to decide whether they need to prolong the oil supply cuts beyond 2018.
While OPEC and other oil nations put effort to eliminate the global oil glut, the increasing supply from the US and other oil producers undermines the cutbacks.
Libya and Nigeria, OPEC oil countries, are exempt from the agreement. While the oil production levels are not diminishing, we also saw a reopening of some oil fields in Libya.
Meanwhile, the US shale production is also on the rise. According to the data from the US government, US shale output will hit a record high next month.
Consequently, OPEC’s current oil supply level, which stood at about 32.8 million barrels a day in July, is much higher than needed for the most of next year.
According to the latest IEA report, the OPEC can possibly expand the oil inventories instead of reducing them.
The long-term outlook also does not look good. As per the analysis from the ESAI energy, over the next five years, US production will continue to rise.
At the same time, the growth in oil consumption will drop. This is due to the development of new products derived from gas.
But Sarah Emerson said, “If OPEC wants to keep oil prices in the $50s and hit $60, the organization will have to keep a lid on supply for several more years.”
Yet, the oil cuts by OPEC and Russia have achieved some results. Global oil inventories have dropped in Q2 2017, thus bringing the bloc closer to their goal. That time, a discount on immediate crude supplies turned into a premium.
Nevertheless, the prospects of the oil bloc struggling with the OPEC oil glut problem for years still weigh on the oil prices.
The question now is, ‘if the deal will need to be expanded for years to go, will all the countries comply with the prolonged cuts?’