Fitch: OPEC move limits oversupply risk, but shale key long-term
"The decision of OPEC, Russia and other oil-producing countries to extend their deal on production cuts reduces the potential for a significant market oversupply in 2018," Fitch Ratings noted in a recent report.
We believe the extension has already been largely factored into oil prices, which are more likely to stabilise at USD50-60/bbl in the coming years.
However, much will depend on the performance of US shale.
Saudi Arabia and Russia are the driving forces behind the deal on production cuts and their commitment to the deal has remained strong.
US shale production can also respond rapidly to changing market conditions and the recent price recovery increases the probability of strong shale production growth in 2018.
US shale is likely to satisfy most of the incremental oil demand in 2018 and we believe it has the capacity to remain the key incremental supplier for the next several years.