An Extension of the OPEC Deal Would Not Raise Crude Oil Prices

oil barrels
Image Source: Remco van der meer, CC BY 2.0

The International Energy Agency (IEA) stated that crude oil prices would not be lifted by an extension of the deal made by the Organization of the Petroleum Exporting Countries (OPEC).

Several OPEC members, including Kuwait, and a number of analysts state that an extension is likely. In fact, experts believe that the organization has little choice but to extend implementing the cuts for another six months. However, the IEA disagrees that such a move will truly raise crude oil prices.

According to the IEA executive director Fatih Birol, maintaining the cuts implemented by OPEC for another half a year would not solve the issue on supply this year. He said:

“There is a tremendous amount of stock in the markets and to expect a major increase in the price is not very realistic.”

Aside from the problem on inventory, the IEA went on to say that a price increase would simply spark new supply, which will quickly cause prices to decrease. The agency’s claims are also supported by Goldman Sachs, which stated that the cuts will not lead to higher prices and would even be self-defeating.

Moreover, the IEA argues that supply is set to come online from other countries, such as Canada and Brazil. It stated:

“If we see the prices go up as a result of any push from the producers … we will see more oil coming to the market, not just from the U.S.; we will also see Brazilian and Canadian oil coming to the market.”