Aimed at rebalancing the oil market, the Organization of Petroleum Exporting Countries (OPEC), joined by non-member countries led by Russia, agreed to extend the oil production cuts until the end of 2018.
OPEC said that due to the uncertainties associated mainly with supply and, to some extent, demand growth it is intended that in June 2018, the opportunity of further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards rebalancing of the oil market at that time.
To remind, in November 2016, OPEC countries decided to cut production to 1.2 million barrels a day (mb/d) for six months, effective from 1 January 2017. Additional measures have been introduced since to keep the production at reduced levels.
Considerable progress has been made in restoring the market balance, however, OPEC believes that more needs to be done for fully-fledged recovery.
“This morning, at the Meeting of the OPEC Conference, we discussed the current oil market situation and the outlook for 2018, and deliberated on the extension of the current production agreement to continue the improving direction of the market,” Khalid A. Al-Falih, Saudi Arabia’s Minister of Energy and President of the OPEC Conference, said while addressing the present in Vienna, on November 30.
“Looking ahead, economic performance is improving in most of the world’s leading economies. In fact, the IMF is forecasting global growth in 2018 at 3.7 percent, while the European Commission has just stated that the EU this year is on track to grow at its fastest pace in a decade. Oil demand growth, on the other hand, is on firm ground, and the direction of the market over the past several months shows a distinct improvement in both fundamentals and the overall market sentiment. This gratifying outcome has resulted primarily from 100 percent—or more—compliance to the production targets by OPEC and non-OPEC producers.”
It remains to be seen how will the tanker market endure another year of production cuts. The tanker market has seen a major drop in earnings, especially in the very large crude carrier segment, over the past year in part due to the previously imposed cuts.
Rampant vessel deliveries and tonnage oversupply exerted further pressure on tanker earnings this year.
However, owners have voiced optimism that 2018 might be a year of recovery especially since the ordering of new tonnage has been kept at bay.
Nevertheless, much of the owners’ optimism relied upon increases in Middle East crude exports.
As indicated earlier by Gibson, the only hope for owners to see market recovery will be continued strong gains in long-haul trade, persistent floating storage and slowing fleet growth.
