OPEC: the need to extend the agreement

OPEC: the need to extend the agreement

Elisa Maria Giannetto
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The special OPEC monitoring committee recommended an extension of the agreement on oil production cuts. This in order to bolster prices and limit the increase in US oil stocks and oil production.

After the initial surge in prices, the effect of cuts to oil production appear to have already waned. But from Kuwait City, where yesterday an informal meeting of the OPEC agreement monitoring committee was held, a new appeal has been made to to do more to bolster prices. Five-OPEC countries, plus Oman, have in fact requested an extension of the production cut due to expire in June, and Kuwait has committed itself publicly, stating that a further six-months' commitment needs to be negotiated. The request should be discussed during the next OPEC summit in April, but the path lies open. The continuous rise in US oil stocks and the increase in US domestic production could continue to thwart the effect of the OPEC cuts and dampen the desire for a greater commitment. In order to allow prices to rise further, as Alan Bannister, regional director of S&P Global Platts, interviewed on CNBC, stated - one has to leverage the demand for energy that, especially in some markets, is experiencing sustained growth. "The need for an increased demand in emerging markets is strong. In particular," Bannister explained "due to increased sales of new vehicles." Added to this, one has the restlessness of the markets, with the hedge funds ever less prepared to wager. Analyst Daniel Hynes, in an interview with Bloomberg, argues that "it is no coincidence that hedge fund managers are very sceptical about the possibility of a further rise in oil prices. According to the US Commodity Futures Trading Commission, wagers on a rise in prices were down 37% from last month's record." Meanwhile, the market price of WTI remains below $48, due to the very uncertainties that still persist between OPEC and non-OPEC countries on extending the production cuts. Brent is just above 50 dollars. All the while last week the WTI reached this year's low, even falling below 48 dollars a barrel. But there is also some good news, and a first manifestation of concrete commitment: the United Arab Emirates (UAE) - according to Energy Minister, Suhail Mohamed Faraj Mazrouei - promise they want to exceed the target established under the agreement on the 15-33% reduction in oil output. Good news that could draw other countries towards more extensive cuts and for a longer period of time.