The Organization of Petroleum Exporting Countries and a group of non-OPEC countries led by Russia agreed last week to extend oil production curbs through the end of 2018, while keeping an eye on whether the resulting increase in world prices will bring too much competing U.S. shale production into the market.
OPEC is due to review the results of the renewed production deal at its next meeting in June.
“With oil prices rising above [US$60 per barrel], Russia has expressed concerns that an extension for the whole of 2018 could prompt a spike in crude production in the United States, which is not participating in the deal,” Reuters reports. “The production cuts have been in place since the start of 2017 and helped halve an excess of global oil stocks, although those remain at 140 million barrels above the five-year average, according to OPEC.”
Under the deal, OPEC and its partners have cut their output by about 1.8 million barrels per day. Now, “we are going to be agile, depending on how events unfold,” said Saudi oil minister Khalid Al-Falih.
While fossil media are reporting renewed confidence in the oil patch as a result of higher prices, the bounce could be short-lived.
“If producers in the U.S. increase their rig count over the next few months due to higher prices, then I expect another price collapse by the end of 2018,” Scott Sheffield, executive chair of Permian Basin producer Pioneer Natural Resources Co., told Reuters. “I hope that all U.S. shale companies will maintain their current rig counts and use all excess cash flow to increase dividends back to their shareholders.”