Saudi Arabia and Russia may have agreed to extend oil production cuts into 2018, but a rogue OPEC member like Iraq could still derail the plan, according to Helima Croft, global head of commodity strategy at RBC Capital Markets.
Oil prices surged 2 percent on Monday after Saudi and Russian energy ministers said they agreed producers should roll over a deal to take 1.8 million barrels a day off the market. The six-month accord, agreed to last year, is up for review when OPEC and other exporters meet next week.
Asked why oil prices hadn’t rallied further on the joint announcement, Croft said expectations for an extension were already baked into prices, and the market is now asking whether two dozen exporters will accept Saudi Arabia and Russia’s proposal to keeping cutting through March 2018.
“I think people will wait to see what happens at the May 25 meeting, because there could be some countries like Iraq that could say, ‘We want to bring on more production. We may extend until the end of the year, but we’re not signing up going into 2018,” she told CNBC’s “Closing Bell” on Friday. “So the details are not finalized yet.”
Iraq, OPEC’s second-largest producer, initially balked at the current six-month deal, asking to be exempt because it needs oil revenue to fight ISIS militants. Iraq also quibbled over the benchmark against which the cuts would be measured.