Is this the end of the OPEC+ deal?
President Trump’s recent decision to exit the Joint Comprehensive Plan of Action (JCPOA) and the expectation therefore of the loss of Iranian barrels has brought the fate of the OPEC+ deal to the fore. For some analysts, this signifies that ‘the current OPEC deal will end by end-2018’ while for others the impact may be felt as soon as the next OPEC meeting in June this year, as it will ‘no longer be about extending the production cuts, but rather about when to start raising output gradually’. At the other end of the spectrum, some argue that ‘there is no pressure from within the group to bring their cooperation to an end’ and the ‘deal will run until the end of 2018 and could be extended again if participants don’t believe that the market has been rebalanced’. These very different views reflect the hard choices that OPEC, and its dominant player Saudi Arabia, faces in a more uncertain and geopolitically charged market. On the one hand, Saudi Arabia welcomed Trump’s decision to scrap the Iran nuclear deal and showed its willingness to meet any supply shortages, assuring the market that it has enough oil production to ‘maintain oil market stability’. On the other hand, Saudi Arabia is committed to ‘rebalancing’ the market (which in OPEC’s view has not yet been achieved) and would continue to do so in cooperation with other producers (some of whom are opposed to Trump’s decision to exit the Iran deal) and therefore will not act unilaterally to offset any shortage. Given these multiple objectives, Saudi Arabia needs to engage in a delicate balancing act and hence the decision to terminate the OPEC+ deal is not as straightforward and binary as it is often portrayed. Issues such as the timing of any potential response to Iranian output loss, the type of the response (unilateral or collective), and the way producers decide to exit the deal (assuming that they decide to terminate the output cut agreement) are all important in shaping oil market and price outcomes. This comment explores some of the key factors that may shape OPEC+ decisions in the next few months.