One year ago the Organization of the Petroleum Exporting Countries (OPEC), plus ten other producers, forged an alliance to reduce their output in a bid to bolster prices.
The fall in oil prices, from a peak of USD115 per barrel in June 2014 to under USD35 at the end of February 2016, had a profound impact on the oil sector and its wider supply chain. The drastic measures adopted in 2016 to address a global stock glut have contributed to oil’s recovery to around USD60 per barrel today.
Ahead of OPEC’s meeting in Vienna later this week, industry analysts suggest that further producers could join the alliance. Currently, the group is removing 1.8 mn bpd of crude oil out of the markets, compared to 2016 levels.
OPEC production cut
The scheduled end of the production curb is currently March 2018. This date, however, could be extended to the end of 2019, following statements made by the Saudi Arabian and Iranian oil ministers – OPEC’s two largest producers.
The effect that any extension will have on oil prices is debatable. In late May 2017, the group decided to prolong the output curb from June 2017 to March 2018. Oil prices fell 20 percent over the next month.
In recent weeks, European and US oil prices have climbed to between USD60 and USD65 per barrel, a year-on-year increase of between 20 and 30 percent. Tensions in the Middle East, triggered by Saudi Arabia’s assertive foreign policy towards Lebanon and Iran, have also supported the oil price in recent weeks.
If oil prices were to continue on their upward trajectory, it’s likely that North American producers would increase their output, contrary to the interest of OPEC and its allies.