OPEC: Oil Cut Extension

Recently, OPEC announced it would extend their 1.8 million barrels per day oil supply cuts through the end of 2018 (with a caveat that the agreement would be reviewed in June). Reuters has a couple interesting perspectives from Russia and Saudi Arabia.



Saudi Arabia: has signaled that it wants oil to trade at about $60 a barrel as the kingdom prepares to list shares in national oil champion Aramco and fights a large fiscal deficit.

Russia: wants high oil prices ahead of a presidential election in March 2018. But officials in Moscow have voiced worries about pricier oil boosting the ruble, which could undermine the competitiveness of Russia’s economy.

The potential for lifting the supply cut in June is dependent on reaching a five year average oil stock.

For Saudi Arabia, their desire to see oil trading higher ahead of their Aramco IPO is not news. In regards to Russia, I find it interesting that they're worried about the presidential election in March 2018. Really? I doubt that one. The point I do buy is Russia's concern that high oil prices would drive the price of the ruble, causing other issues for their economy.

CNBC adds an additional tidbit of info:

Nigeria and Libya, two OPEC members exempt from the deal, have agreed not to increase their output next year above 2017 levels, according to the news agencies.

I haven't done any research on Nigeria, but I did do a little reading on Libya. I wonder how much more Libya can boost production anyways. In a previous blog post, I noted that:

Of interest, are the notes in the article about a lack of investment and how production from the "easy and cheap" locations are over and now more investment is needed to extract oil from the less easy and cheap locations. This sounds a bit like Venezuela. In Venezuela, money was given to the poor and not enough was investment in oil infrastructure. Is it possible that too much is being siphoned off by these various groups who want a cut of the oil profits, but so many groups are making demands that not enough money is being spent on investments? And will this eventually cause Libya oil production to drop off?

The big question is US shale. Oilprice has this quote from Saudi oil minister Khalid Al-Falih:

When asked about the rapid comeback of U.S. shale, Al-Falih cited the dramatic decline from conventional and mature oil fields, a depletion rate that means each year the market needs several million barrels per day of fresh supply. He said he doesn’t think “shale can carry the load,” . . . 

His argument seems to hint at the fact that there isn't enough capital being spent on oil exploration, which means conventional oil fields won't be made up by new production.