Major oil producers led by OPEC have agreed to extend their crude output cuts through March of next year, but that could feed a glut of global supplies once the deal is done.
The Organization of the Petroleum Exporting Countries’ 14 current members and 10 non-OPEC members agreed Thursday to continue their cuts of 1.8 million barrels a day, generally from October 2016 crude production levels, through the first quarter of 2018.
“We do not expect that they will extend [the cuts] much beyond that,” Martijn Rats, head of the European oil and gas research team at Morgan Stanley, wrote in a note dated late Thursday. “OPEC production cuts have finite lifespans.”
Compliance with the cuts by OPEC members has been high—at 96%, according to the International Energy Agency’s May oil report.
But in his note, Rats expressed concerns about what will happen once the deal ends. If that coincides with strong shale-oil growth, the market looks to be oversupplied again, he said.