OPEC and a group of non-OPEC supporters led by Russia, have agreed to extend current oil production levels through to the end of 2018.

The agreement to continue to restrict crude oil output was widely expected, although the decision to maintain it for a full 12 months as opposed to the previous nine month periods was a small surprise.

Leading energy analyst firm Wood Mackenzie said the decisions met their forecasts.

Speaking after last night’s OPEC meeting in Vienna, Ann-Louise Hittle, Wood Mackenzie’s Vice President, Macro Oils, said OPEC and non-OPEC come through with a smooth rollover through 2018 and a potential escape clause set for their June meeting.

“The OPEC and non-OPEC agreement to keep the current production restraint in place through 2018 matches Wood Mackenzie’s base case assumption for our price forecast.”

“The stakes were high for OPEC. Despite the success in cutting output and follow-on price recovery, if the agreement had ended in March 2018, our forecast shows there would have been an very large 2.4 million barrels per day (b/d) year-on-year increase in total world oil supply for 2018. That would have led to a persistent oversupply for every quarter of 2018.”

Ms Hittle said that With the rollover in place and the same level of adherence through 2018,Wood Mackenzie expects a 1.8 million b/d year-on-year gain in world oil supply.  With the extension, the supply and demand balance tightens in H2 2018 and helps lift prices in the second half of the year. We expect a pullback in H1 2018 because of resumption of oversupply in the  first two quarters.

“The June review allows OPEC and non-OPEC to reconsider production cuts,” Ms Hittle said. “A mid-2018 review could be warranted due to several uncertainties that could shift the fundamentals for 2018. These include political risk to oil supply, level of recovery from Libya and Nigeria, and rate of growth in US oil production during 2018.  Another is world oil demand growth. If it is stronger than expected, it would cause the oversupply we expect in H1 2018 to shrink.

“Our forecast is based on oil demand growth this year of 1.2 million b/d in 2017 and 1.4 million b/d in 2018 but a colder than expected winter, for example, could lift Q1 2018 demand higher than projected and tighten the market.”