OPEC is discussing a potential deepening of crude oil output cuts in a bid to accelerate market rebalancing, sources from the cartel told Reuters. The news came as the group’s Economic Commission Board met to discuss possible scenarios for next week’s meeting in Vienna. Expectations are that the meeting will yield a consensus agreement on an extension of the cuts, but this is the first time a potential deepening is also being mentioned.
So far, several OPEC members have declared their support for an extension, including the leader, Saudi Arabia, as well as the largest non-OPEC participant in the cut, Russia. In a joint statement, the two countries’ energy ministers said they will support an extension of the cut.
While analysts had argued that at the current rate of production, global inventories would take too long to rebalance, so the cuts needed to be deeper, but no comments were coming from OPEC on that point. This latest report could inject some optimism among traders, although one of Reuters’ sources noted that “Today’s meeting is just informative, nothing major.”
While the extension is all but certain, there are still doubts that it will achieve its stated goal of bringing the international oil market back to balance—in other words propping up prices enough to allow for investment in new production in Middle Eastern and other producers, whose hands are now tied by budget deficits.
There are two OPEC members that are expanding their output thanks to an exemption granted by the cartel, Nigeria and Libya. Nigeria is aiming to bring its daily output to 1.8 million bpd, after which it would consider joining the cut, and Libya has hit the 800,000-bpd mark for the first time since 2014, eyeing a ramp-up to 1.3 million bpd by the end of the year. The combined output of the two countries is currently around 2.3 million bpd. To compare, OPEC and its partners agreed to cut 1.8 million bpd from global daily supply.