OPEC Set to Announce Extension of Production Cut

OPEC ministers head to Vienna on Thursday to decide whether to extend output cuts beyond March next year. The prospect, however, of an alliance breakdown between the world’s two largest oil producers threatens to scupper the cartel’s plans.

OPEC is expected to extend its deal with Russia and other oil producers to keep 1.8 million barrels a day off the market, but what’s not clear is for how long. Analysts believe the market is positioning for a nine-month extension from the deal’s current expiration in March.

West Texas Intermediate graph

“OPEC has been left with little room for error,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said in a research note.

Since the cartel’s last meeting in May, crude prices have surged nearly 20 percent while West Texas Intermediate (WTI) prices are up approximately 10 percent. The recent uptick in oil prices appears to have emboldened the case for an extension to supply cuts next year — a move industry analysts believe is necessary in order to clear a global supply overhang.

Oil investors could “easily turn from sweet to sour” if OPEC was to fail to deliver a strong message of support for an extension to production cuts, Hansen said. However, he suggested much of the meeting would likely hinge upon the world’s largest non-OPEC producer.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza