Azernews.Az

By Kamila Aliyeva

The world oil market is gradually regaining balance although options regarding prolongation of the OPEC+ output cut deal are still on the table.

International oil experts and economists consider that the extension of the deal is the most optimal case since otherwise the probability of higher surplus and lower prices on the market is quite high.

British Petroleum, the world's leading energy company, believes there is high probability of extending the OPEC+ agreement.

This was stated by BP Chief Economist for Russia and CIS Vladimir Drebentsov during the presentation entitled “BP Statistical Review: Oil and Gas Markets in Transition" and forecasts until 2035 in Baku on October 25.

He said that currently, the market balance with respect to supply-demand is improving, which is the result of OPEC decision to reduce oil production in November 2016.

“At the same time, OPEC cannot stop the growth of production in the U.S., which began as a result of the shale revolution. The effectiveness of OPEC’s decision is visible from the dynamics of oil prices, but on the other hand, it could be more effective. Not all countries have fulfilled those obligations that they undertook. Moreover, Libya and Nigeria increased production during this period, because the quota regime was not extended to them,” the expert noted.

It is important now for OPEC what will happen after March 2018, when the current agreement expires, according to Drebentsov.

“We proceed from the assumption that the probability of extending this agreement is quite high. Most likely, OPEC agreement on reducing production will continue, because the task has not been fully implemented. The problem began to be solved, commercial stocks began to decline, but they have not returned yet to normal levels. And for this, it is necessary to extend the agreement on production cut for entire 2018,” he said.

BP Chief Economist also noted the possibility that once the agreement is extended, OPEC will have to modify it, at least in two directions.

“It will be necessary to extend the quota regime to Libya and Nigeria, because the fact that this was not done initially, reduced the efficiency of the decision. The second issue, which will have to be considered and solved, is related to the fact that the current production quota regime was not the most effective mechanism for regulating the supply of oil on the world market,” he said adding that it is important how much oil is delivered to the market.

The expert went on to say that this happened because there are countries that physically reduced production, but at the same time increased the export of oil.

“In this regard, I believe that OPEC will have to make some modifications in the extension of the agreement,” added Drebentsov.

Meanwhile, the issue of deal’s extension was also commented upon by Russian Energy Minister Alexander Novak who noted that the decision on the future of the agreement will be adopted only in early 2018, although it will also be discussed at the next meeting of the alliance on November 30.

The minister said that both options are possible – a way out of the deal, which expires on March 31, and its extension.

"It depends on the market situation, and it is positive," he said, adding that in case the balance of global reserves is achieved by April, there won’t be need for the extension.

OPEC and other major oil producers such as Russia, Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan, and South Sudan reached an agreement in December 2016 to remove 1.8 million barrels a day from the market.

The deal to curb output brought crude prices above $58 a barrel in January but they have since slipped back as the effort to drain global inventories and stabilize the oil market has taken longer than expected.

OPEC and its partners decided to extend its production cuts till March 2018 in Vienna on May 25, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.