OPEC’s ‘Catch-22’: How to Unwind Its Deal to Cut Oil Output

2 Aug 2017   OPEC

OPEC and other big oil producers are facing a new high-wire act: how to keep the oil market calm if they decide to lift their output curbs and ramp production back up.  Saudi Arabian Energy Minister Khalid al-Falih said last week the Organization of the Petroleum Exporting Countries doesn’t want to “shock the markets” when it unwinds a November agreement to withhold almost 2% of global oil supply. The deal is set to expire in March 2018.  “We will work on a smooth exit from the agreement. We will make sure it’s not abrupt,” Mr. Falih told reporters in St. Petersburg after meeting with other oil ministers.  Since the deal, analysts and investors have raised questions about how the group will extricate itself from the arrangement. Investors worry the coalition of OPEC and other big producers like Russia—an alliance that accounts for 55% of world-wide oil output—could simply return to pumping full tilt when the deal expires, potentially sinking prices.  “The producers have created a Catch-22 situation,” said Harry Tchilinguirian, head of commodity strategy at BNP Paribas. ”There has been no guidance about a formal mechanism for exiting the agreement and that’s unnerving the market.”

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