OPEC meeting: Russia and its decisive key role

7 years ago - Published in Commodities, Finance

A reluctant Russia is expected to agree with OPEC and other producers to continue to curb global oil production, but the deal may have more caveats than initially expected by the market.

The somewhat rocky road to reaching an agreement by Thursday's OPEC meeting has also exposed some cracks in the new world order of oil – where Saudi Arabia and Russia use their combined heft to influence prices and global supply. The cause of those "cracks" in the new 'R-OPEC' appears to be U.S. shale oil.

Crude oil market analysts and investors anticipate an extension of the OPEC and non-OPEC production cuts for an additional nine months, through the end of 2018. Bloomberg stated that of 36 survey respondents it queried, all expect an extension at the November 30, 2018 meeting.

The market seems to be relying strongly on comments made by Saudi Arabia Minister Khalid Al-Falih. He has made it clear that he believes that the goal of achieving a reduction in crude oil inventories to their five-year average would not be achieved by March 31, 2018. Therefore, he believes that OPEC should provide clarity to the market and extend output curbs at the November meetings.

Reports of Russia’s hesitation regarding timing and length of the extension of production cuts surfaced about two weeks ago. Russia wanted to wait and see additional information before committing to nine additional months.

If the Russians decline an extension and resume production at previous levels when the current agreement runs out at the end of March, crude prices will immediately give back a big portion of their recent gains. If the Russians agree to extend their production cuts for any length of time before the end of 2018, prices will also fall. Only a commitment from Russia to maintain its current production levels will lift prices.

However, in the past few days, it has been reported that Russia and Saudi Arabia had reached a consensus on an end of 2018 extension announcement at the November 30th meeting.

The Organization of the Petroleum Exporting Countries (OPEC) will hold its 173rd OPEC Meeting & 3rd OPEC and non-OPEC Ministerial Meeting on Thursday, November 30, 2017, in Vienna, Austria.