Exit Strategy may Prove more of a Challenge for Oil Producers

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OPEC and non-OPEC have so far had a smooth ride in rebalancing the markets through the production cuts in place since January. Compliance levels. particularly from the Arabian Gulf OPEC producers have been high. and co-operation with non-OPEC`s biggest producer Russia has been excellent. Relations between OPEC kingpin Saudi Arabia and Russia have also warmed over the past year with the visit of King Salman to Moscow and plans to set up a US$1 billion energy fund to invest in upstream and downstream projects in both countries. In another sign of closer cooperation. Saudi energy minister Khaled Al Falih joined Russian president Vladimir Putin on Friday at the launch of the world`s coldest liquefied natural gas (LNG) facility at Yamal in the Arctic – where Saudi Arabia plans to invest. While it has been smooth sailing so far for OPEC and exporters outside the group. the real cracks in the ice could show next year when the producers hammer out a deal to phase out the curbs. The pressure comes from Russia. which is reluctant to prolong the curbs for longer than needed. The US is considering more sanctions on the already squeezed Russian economy. which looks spent from low oil prices. its military excursion in Crimea as well as sanctions from the European Union.
Oil exporters who agreed to the curbs also remain cautious over the inflow of shale oil that could upset the delicate balance achieved in the oil markets so far. Speaking to reporters on Monday. Suhail Al Mazrouei. the UAE energy minister. weighed cautiously on OPEC`s exit strategy. It`s `unfair` to speculate. he said. His former Kuwaiti counterpart – Issam Al Marzooq – by way of a parting commentary was more forthcoming of the challenges facing the grouping. `Russia wants to exit the deal as soon as possible.` Mr Al Marzooq told Bloomberg on Sunday.. OPEC is set to convene in June to discuss its exit strategy. So far the group has worked out the production cuts to be five per cent of an exporting nation`s output. Producers like Russia would want to pump when the market reaches a comfortable price. especially with the looming threat of sanctions.