- Oil traders eagerly anticipating an extension of the current OPEC-led production cut could be left sorely disappointed this week;
- OPEC oil ministers will be in Vienna Thursday and there is widespread expectation that members will decide to extend oil output cuts beyond a deadline of March 2018.
- However, there is some anxiety that the biggest non-OPEC producer that also signed up to the output cut, Russia, could pull out of an extension, sending markets sharply lower.
Oil traders eagerly anticipating an extension of the current OPEC-led production cut could be left sorely disappointed this week, according market analysts including RBC Capital Market's Helima Croft.
OPEC oil ministers will be in Vienna Thursday and there is widespread expectation that members will decide to extend oil output cuts beyond a deadline of March 2018, a move that has helped to stabilize prices. However, there is some anxiety that the biggest non-OPEC producer that also signed up to the output cut, Russia, could pull out of an extension, sending markets sharply lower.
Croft, the global head of commodity strategy at RBC, told CNBC that Russia — or specifically Russian President Vladimir Putin — was the wildcard that could disappoint markets.
Putin is under pressure at home to not overdo the extension of output cuts, with a number of Russia's largest oil companies reportedly showing displeasure at a possible extension to the current deadline of March 2018.
There are also differing budgetary needs between Russia and its OPEC ally Saudi Arabia that Putin has to consider. While Russia is basing its 2018 budget on an oil price of $40 a barrel, OPEC's de facto leader Saudi Arabia needs a higher price per barrel to break-even, requiring $70 a barrel in 2018, according to the International Monetary Fund (IMF), and as such sees cutting for longer as a way to achieve this.
What might prevent Russia from deciding against exiting the oil output cut deal as scheduled is that it is likely to cause a meltdown in markets, Croft said, an event that could be politically unpalatable if Putin does decide to run for the presidency again in Russia's presidential election in March 2018. Likewise, Croft said that a sell-off in markets would not be popular in Saudi Arabia where Crown Prince Mohammed bin Salman is overseeing a reform drive to reboot the economy.
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