The year 2017 cannot end quickly enough. It would be remembered by the Organization of the Petroleum Exporting Countries (OPEC) as the year its worst fears did not materialise yet its fondest dreams did not exactly come true.
Going into 2018, below are some of the expectations of the organisation:
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A good crisis
No OPEC member would literally not want earth-shattering crisis, the sort where bombs do more of the talking. But it would prefer some geopolitical tensions because they are good for oil prices.
Global markets react differently to crisis. It could lead to concern from traders and investors in money markets but sometimes, geopolitical tensions, in the right mix, is the spark to light up commodity markets. OPEC would be counting on President Trump and the young dictator in North Korea and Iran to provide needed hysteria required to boost oil prices.
Total compliance with oil cuts
The Organization of the Petroleum Exporting Countries, Russia and other producers earlier agreed to cut output by about 1.8 million barrels per day (BPD) until March 2018 to get rid of a glut and support prices. On November 30, OPEC and its allies outside the group agreed to maintain oil production cuts until the end of 2018, extending their campaign to shore up crude oil prices.
But the deal has suffered some setbacks with countries like Iraq failing to comply with production cuts. Iraq and the UAE have shown relatively low compliance with the deal based on figures from secondary sources OPEC uses to monitor its supply. Meanwhile, non-OPEC producers like Kazakhstan and Malaysia have been boosting output in recent times. OPEC would surely want better compliance in 2018.
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Reining in Iran
The last round of UN sanctions against Iran constrained hundreds of thousands of barrels of crude oil production from Iran because it could not participate in the global oil market.
Any move by the European Union or the United Nations to impose new sanctions on Iran over its ballistic missile program and alleged involvement in Middle East conflicts would really help to shore up oil prices.
Last year, as soon as sanctions were lifted, Iran exports to South Korea more than quadrupled to 400,000 barrels a day since the international sanctions were lifted in January in 2016.
Venezuela production to fall
OPEC cannot say this out loud, but will really wish that crude output in Venezuela continues to plateau. In October, it dipped below 2 million barrels per day, its lowest level in nearly three decades.
The cartel’s latest monthly data showed Venezuela reporting production of 1.955 million BPD in October, versus 2.085 million in September. It has still not recovered so much in December.
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Capital constraints on US tight oil
Crude oil production out of the US is expected to hit record levels next year, buoyed in part by OPEC supply curbs that have put a floor under prices. But this is not going to be good news for OPEC.
Brent crude is expected to average $60 a barrel in 2018, while its US counterpart is seen at about $55 a barrel, according to the median estimate of 27 analysts surveyed by Bloomberg. That’s below where oil prices sit now – currently near $64 a barrel for Brent and close to $58 for West Texas Intermediate.
However, if investments decline for shale production, this might lead to a fall in output and give up some market to share to OPEC.
More cars in China, India
OPEC will really want more people to use cars in China and India but this is a period where these countries are ramping efforts to cut emissions by turning to electric cars.
But this is all about wish lists, let us see what happens in 2018.
ISAAC ANYAOGU
