ANTWERP (Reuters) - An extension of OPEC oil production cuts could push oil prices too high to meet Saudi Arabia and others’ objective of balancing the market without encouraging U.S. shale output, Gunvor’s head of oil market research said on Wednesday.
The Organization of the Petroleum Exporting Countries (OPEC) had already begun to achieve some of its aims, creating a virtual price floor of $50 per barrel, David Fyfe told the Platts Middle Distillates conference in Antwerp.
OPEC, Russia and other producers have agreed to trim 1.8 million barrels per day (bpd) from their production for six months from Jan. 1.
Fyfe said extending the cuts beyond the six month agreement could push prices so high that they would draw larger output increases from other regions.
“If they hold 1 million bpd cuts into 2017, and the Russians contribute something, there could be a 250 million-barrel draw,” Fyfe said. That size of a draw “would push prices sharply higher, and they don’t want that.”
OPEC has said its production deal is extendable for another six months but a number of the group’s oil ministers have said this is not likely.
Some analysts have said an extension of the supply cuts would be necessary to maintain stability in global supply/demand balances.
But Fyfe said that under OPEC’s current plan, the market could draw roughly 120 million barrels from storage, beginning in the second quarter, keeping prices in the $55-$60 per barrel range this year, eventually “drifting” to $70-$75 per barrel in 2018.
Fyfe said this should ensure prices would not go too high or too low.
He said a 120 million barrel stock draw would still leave global stocks above their five-year average. The International Energy Agency said in its latest report that stocks in the developed world were still some 300 million barrels above that level.
Fyfe also said the lack of spare oil production capacity meant that higher stocks could help the market cope with further supply outages, such as those in Libya and Nigeria.
Reporting By Libby George. Editing by Jane Merriman