OPEC deal renewed, but Saudi nods towards “exit strategy”

OPEC’s decision this month to roll over its oil output cuts displayed a rare sense of cohesion from the cartel, but there are signs that de-facto leader Saudi Arabia is seeking an eventual end to intervention. The extension of the cuts to the end of March next year (on the same terms as those agreed in November) should be enough to bring crude stocks back to their five-year average, a target regularly cited by OPEC. Nonetheless, oil prices have fallen by 5% over the past few days as investors that had hoped for deeper output reductions have been left disappointed. The mood has been further soured after Saudi Arabia’s Oil Minister, Khalid al-Falih, said that the group will begin developing an “exit strategy” from the cuts. As we’ve argued for a while, Saudi Arabia and the rest of the Gulf countries were always likely to resist calls for bolder action for fear that it could bolster the recovery in US shale production, thus undermining their own position in the market. A repeat of the cycle of ever-deeper production cuts in the 1980s, which did little to support oil prices and hit economic growth hard, seems highly unlikely.