OPEC’s compromise came up short – here’s what they need to do

December 12, 2018

OPEC+ will need to stay 700,000 bpd below its agreed targets of 31.8 million bpd through 2019 in order to bring a recovery in Brent prices to the $70 level, Rystad Energy says.

The OPEC countries and Russia agreed on December 7 to cut oil production by 1.2 million bpd in 2019 – slightly larger than the 1.0 million bpd cut expected by many observers.

“The OPEC+ agreement predictably came up short of what Rystad Energy argued would be required to fully balance the market in 2019. The agreed production cuts will not be enough to ensure sustained and immediate recovery in oil prices. The muted market reaction seen thus far comes as no surprise to us”, Rystad Energy head of oil market research Bjornar Tonhaugen says.

OPEC-14 crude production, montly

Rystad Energy provides comprehensive and up-to-date insight into global oil markets.  In a note to clients, Tonhaugen writes:

  • The agreed OPEC+ production cuts will not be enough to ensure sustained and immediate recovery in oil prices
  • The decision does stand as a Christmas gift to budget-setters in the US shale industry, where the relentless growth in production is set to continue also for the second half of 2019 and beyond
  • OPEC+ succeeds in preventing massive over-supply in the first half of 2019 and in putting a soft floor under oil prices for now
  • If production cuts by OPEC and Russia are extended through 2019, the market can balance

Supply-demand growth bridge 2018-2019

“Most likely, OPEC will be forced to conduct production management sporadically over the next few years, unless US shale supply grows even faster than we currently expect. OPEC members have their work cut out for them in the years to come”, Tonhaugen says

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Contacts:

Bjornar Tonhaugen
Head of Oil Market Research
Phone: +47 466 62 509
bjornar.tonhaugen@rystadenergy.com

 

Morten Bertelsen
Media Relations
Phone: +47 951 98 742
morten.bertelsen@rystadenergy.com

 

About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway. Further presence has been established in London, New York, Houston, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.