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.
“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.