Kuwait Times

Oil producers debating 1-yr cut extension

-

OPEC and non-member oil producers will debate today a proposal to extend output cuts by as long as 12 months in a move to help clear a global stocks overhang and prop up prices. The Organizati­on of the Petroleum Exporting Countries is to discuss in Vienna whether to prolong an accord reached in December in which it and 11 non-members agreed to cut oil output by about 1.8 million barrels per day in the first half of 2017.

The market sees an extension by nine months - instead of the initially suggested six months - as the base-case scenario. OPEC’s de facto leader, Saudi Arabia, has said it favors such a move to speed up market rebalancin­g and prevent oil prices from sliding back below $50 per barrel. Saudi ally Kuwait signaled yesterday OPEC could discuss deepening the cuts, in what would come as a positive surprise for market bulls.

But hopes quickly faded after a joint OPEC and non-OPEC committee recommende­d keeping the curbs unchanged for nine months. Saudi Energy Minister Khalid Al-Falih gave the thumbs up when asked whether the committee had agreed on a nine-month extension, but his Russian counterpar­t Alexander Novak surprised later by saying a 12-month prolongati­on was also on the table. “The recommenda­tion is to keep current quotas ... The duration is nine months. Tomorrow we will discuss the possibilit­y of extending by another three months (to June 2018),” Novak said. Iraq also said the 12-month option - an unusually long duration for an OPEC cut - was on the table.

By 1715 GMT, Brent crude was trading down 0.5 percent, below $54 a barrel. “OPEC has already achieved a lot. They stopped the oil market surplus from building even before they started cutting,” said Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts. Amrita Sen of consultanc­y Energy Aspects said: “If OPEC can ease fears about 2018 balances, that will also help the upside to prices in 2017.”

Most OPEC ministers including those from Iraq and Iran had already voiced support for extending cuts by nine months. Iranian Oil Minister Bijan Zanganeh, who had clashed with Saudi Arabia in many previous OPEC meetings, said in Vienna that OPEC seemed to have built a consensus around nine months. “I would go along with the majority,” Zanganeh said. Under the existing deal, Iran received an exemption slightly to raise output, which has been curtailed by years of Western sanctions. Iran’s production has been stagnant in recent months, suggesting limited upside potential at least in the short term.

OPEC’s cuts have helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreigncur­rency reserves to plug holes in their budgets.

Oil’s earlier price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.

Surprises today are still possible. A substantia­l additional cut was unlikely, one OPEC delegate said, “unless Saudi Arabia initiates it with the biggest contributi­on and is supported by other Gulf members”. The price rise this year has spurred growth in the US shale industry, which is not participat­ing in the output deal, thus slowing the market’s rebalancin­g with global stocks still near record highs.

OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion. Algerian Energy Minister Noureddine Boutarfa said he believed stocks remained stubbornly large in the first half of 2017 because of high exports from the Middle East to the United States. “Thankfully, things are improving and we started seeing a draw in inventorie­s in the United States,” Boutarfa said, adding he believed that inventorie­s should decline to their five-year average by the end of 2017. Exports will be a key focus on Thursday as OPEC members recognize that their own destocking has led inventorie­s to fall less than expected, Sen of Energy Aspects said: “We believe there will be a push to stop destocking by OPEC producers and hence reduce exports.” — Reuters

 ?? — AFP ?? VIENNA: Saudi Energy Minister Khalid Al-Falih and Kuwaiti Minister of Oil and Electricit­y and Water Essam Al-Marzouq leave OPEC headquarte­rs yesterday.
— AFP VIENNA: Saudi Energy Minister Khalid Al-Falih and Kuwaiti Minister of Oil and Electricit­y and Water Essam Al-Marzouq leave OPEC headquarte­rs yesterday.

Newspapers in English

Newspapers from Kuwait