Is the End of the OPEC Deal on Reducing Oil Production Near?

Oil prices fell more than 1% amid news of rising US inventories, with reports that OPEC may consider ending the cut production agreement.

Some OPEC officials are reportedly reconsidering an extension of production cuts beyond June. So far, the consensus has been that OPEC and its exporters will need to keep the cuts in place until the end of this year to rebalance the market.

But the speed of rebalancing efforts surprised most analysts and perhaps even OPEC. While the group has kept 1.2 million bpd on the market since the beginning of this year, US sanctions have knocked more inventory in Venezuela and Iran. In March, Venezuelan oil production fell by 289,000 bpd. The widespread blackout, the economic and political crisis and the harsh US sanctions have crushed the Venezuelan oil sector.

At the same time, Iran’s production has held up somewhat better but has been suffering significant declines since last year. US waivers to eight countries that import Iranian crude expire in a few weeks. As of now, Trump officials seem divided on whether to take a hard line or not by allowing exemptions to expire.

Secretary of State Mike Pompeo is now being seen at the softer end on the spectrum regarding the Iran issues, so the fact is that his administration is trying to adjust the White House policy is telling. It is worth mentioning that the State Department is concerned about the shake-up of oil markets if the US administration takes a very aggressive stance towards Iran.

Meanwhile, OPEC is watching all these events closely. Saudi Oil Minister Khalid al-Falih has suggested more than once in recent months that OPEC production cuts may be extended. This time OPEC will benefit from the ability to respond after the US president makes a decision on Iran sanctions waivers. The surprise release last year was one of the main reasons behind the price collapse in the fourth quarter.

If the United States takes a hard line and stops more Iranian supplies, and Venezuelan supply losses continue to increase, OPEC may decide to increase output from current levels. The report comes in the wake of comments from Russian President Vladimir Putin a few days ago that Russia is concerned about keeping the supply out of the market. Putin said he did not support the uncontrolled increase in prices. Russian Energy Minister Alexander Novak said there would be no need to extend the cuts.

At the same time, on Wednesday, the Energy Information Administration reported another sudden rise in crude stocks. Given Russia’s uncertainties, US stocks, and now the prospect of OPEC thinking of increasing production, the news has exhausted the recent surge in prices.