Taking Stock

27 Oct 2017;

When OPEC announced their first production cuts in eight years in September 2016, it was clear that the key objective was to drain record global oil inventories and bring a certain balance back to the oil markets.  OPEC hoped that this would lead to a recovery in oil prices.  The original six-month deal started on January 1, 2017 and cut a combined 1.8 million of production from OPEC and select non-OPEC producers (including Russia).  Initially it did not have the intended effect of significantly reducing inventories and raising oil prices.  Other non-OPEC producers, in particular in the U.S. ramped up production, which largely negated the OPEC cuts.  At the end of May. OPEC decided to extend the production cuts for nine months until the end of March 2018.  At their next meeting in November, OPEC will decide if a further extension is needed or not.  The consensus among “OPEC-watchers” seems to be that it is likely that the production cuts will be extended again.  Although this is not what the tanker companies want to hear, there are some bright spots.

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