Will it be six months or nine months?
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OPEC and its 10 non-OPEC allies appear to be debating between the two options for extending its 1.8 million b/d supply cut deal past its March expiry, as they prepare to meet Thursday in the Austrian capital.
Which option wins out will largely determine the direction of prices and the pace of recovery of US shale.
Citigroup's head of commodities research Ed Morse warned Tuesday that global oil prices could plunge by up to $8/b if the OPEC/non-OPEC coalition disappoints traders by not extending the deal for nine months through the end of 2018.
"The issue is not so much whether the market is going to sell off, the question is whether it's going to sell off a little bit, a lot, is it going to be sustained much, or is it going to be a short-term phenomenon," Morse said, noting the massive build in net speculative length in the futures market.
Even so, a growing concern within the 24-country bloc of overshooting on the oil price has some delegates preaching caution on being too aggressive with extending the cuts, particularly with market fundamentals having tightened in the past several weeks.
"We haven't agreed on the [time frame] yet," Kuwaiti interim oil minister Essam al-Marzouq said on arrival in Vienna. "It depends on the scenarios that we see tomorrow."
Marzouq, who in October suggested that the cuts would not need to be extended as long as compliance with quotas -- robust to date -- remained strong, chairs a five-country monitoring committee that will meet Wednesday to review compliance with the deal and assess market conditions.
Russian energy minister Alexander Novak, who has urged his counterparts to wait until closer to the deal's March expiry to make any decisions, had yet to arrive in Vienna as of Tuesday night.
Saudi energy minister Khalid al-Falih, who has been pushing for a nine-month extension of the cuts through end-2018, acknowledged that the producer coalition had yet to reach consensus on how soon the overhang of oil in storage will drain to "normal levels."
"According to studies, there are differences over the amount of time we need to reach normal levels of stocks," Falih said on CNBC after speaking at the Gulf Petrochemicals and Chemicals Association Forum in Dubai, before leaving for Vienna, where he did not speak to reporters.
Asked what he considered the normal level of stocks, he said: "This is a technical matter and needs discussion with the other parties."
"We will hear everyone and reach a solution that is agreeable for both the producer and consumer markets," Falih said.
The OPEC/non-OPEC coalition is aiming to bring commercial oil inventories held by Organization for Economic Cooperation and Development countries down to the five-year average with its supply cuts.
Those stocks are now down to 140 million barrels above the five-year average, down from 340 million barrels in January, when the production cuts went into force, Haitham al-Ghais, Kuwait's OPEC governor, told S&P Global Platts in an interview in Vienna late Monday.
"It's just a matter of agreeing on the terms of the extension -- the duration mostly -- and what's the best workable scenario for everybody to move forward," Ghais said.
Analysts in Vienna for the OPEC proceedings likewise remain divided on what result to expect from Thursday's meeting.
Gary Ross, global head of oil for Platts Analytics, said Saudi pressure likely will prevail on the rest of the coalition.
While Russia remains wary of oil sticking above $60/b, which could strengthen the ruble and negatively impact its export economy, it does not have much spare production capacity anyway, he said.
"My guess is they will get a deal done as per Saudi preference to end the year," Ross said.
But Jamie Webster, a fellow with Columbia University's Center on Global Energy Policy, said that while a nine-month extension could not be ruled out, any deal would be subject to review anyway at OPEC's next scheduled meeting in June, making any extension beyond that somewhat moot.
Many OPEC members and non-OPEC producers are concerned about what a full year of cuts in 2018 would do to incentivize US shale producers to boost output, particularly with oil prices already above $60/b, said Joe McMonigle, an analyst with Hedgeye.
"With all the mixed signals coming from OPEC and the Russians, we think the market will be relieved by any production cut extension," McMonigle said, saying one scenario could be a three-month extension that would allow the coalition to reassess at its meeting in June. "No extension decision at the meeting would see a negative market reaction, and therefore we think it is a very unlikely scenario."
But Ghais told Platts that ministers will not be influenced by any fears of a market selloff by disappointed traders, and that any negative sentiment will ultimately be retraced once bullish market fundamentals become apparent again.
"Whenever there is a big meeting like this, prices will react, hopefully in a positive way, but the decisions are always made on the basis of substance and fundamental information on supply and demand that we deliver to the ministers from our technical meetings," said Ghais, who also chairs the OPEC/non-OPEC Joint Technical Committee, which met Tuesday to discuss options on the deal.
UAE energy minister Suhail al-Mazrouei, speaking on the sidelines of the GCPA Forum, said he felt the oil market is "at a much better position than it was last year at the same time," attributing the coalition's strong production discipline with helping reduce the stock overhang.
"We are looking hopefully for a year of correction and recovery," Mazrouei told reporters. "We feel time needs to be given to the market to fully recover and we look forward to go and look for consensus when we meet."
Ecuadorian oil minister Carlos Perez said OPEC was targeting an oil price of $55 to $60/b.
"I think this has been achieved," he said on arrival in Vienna. As for an extension of the production cut agreement, he said: "We don't know yet exactly for how long, but we'll maintain the cuts, I think it will be for the majority of 2018."
-- Staff reports, firstname.lastname@example.org
-- Edited by Jason Lindquist, email@example.com