OPEC, Russia set for oil cut extension
VIENNA: OPEC and Russia look set to prolong oil supply cuts until the end of 2018 this week while signaling that they may review the deal when they meet again in June if the market overheats. With oil prices rallying above $60 per barrel, Russia has questioned the wisdom of extending existing cuts of 1.8 million barrels per day (bpd) until the end of next year as such a move could prompt a spike in US production. Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy champion Aramco next year and would hence benefit from pricier crude.
Six ministers from OPEC and non-OPEC oil producers including Saudi Arabia and Russia were meeting in Vienna yesterday one day ahead of a full OPEC gathering - to review recommendations by their delegates. On Tuesday, a joint OPEC/non-OPEC committee recommended extending cuts until the end of 2018 with an option of reviewing the arrangement at the next OPEC meeting in June, three sources from the Organization of the Petroleum Exporting Countries said.
“In reality it would be only a three-month true extension with the review in June,” said Olivier Jakob from Petromatrix consultancy. The existing cuts expire in March. Benchmark Brent and US crude prices declined yesterday for a third consecutive day although Brent remained above $63. The United Arab Emirates energy minister said on the eve of a meeting of OPEC and its allies on extending an oil production cap that he is hopeful a deal will be reached.
“I am optimistic that this group of committed countries will come up hopefully today with a decision that is good for the market,” UAE Energy Minister Suhail Al-Mazrouei said yesterday in Vienna. Twenty four countries agreed at the end of last year to limit their crude output, which has led to a recovery of oil prices that fell under $30 per barrel at the beginning of 2016.
The deal that reduced production by 1.8 million barrels per day has already been given more time once, and discussions are about extending it beyond March 2018. Mazrouei, who met with his Saudi and Kuwaiti counterparts earlier yesterday, did not comment on his discussions. Gulf nations traditionally meet ahead of OPEC meetings to agree a common policy. “We need to meet, there’s nothing I can tell you now. We need to wait for the meeting,” he told journalists, referring to the important technical meeting to be held yesterday afternoon. That meeting involving ministers from several nations, including major producers Saudi Arabia and Russia, was due to give a recommendation for the main gathering today. Saudi Arabia may have difficulty, however, in convincing Russia to agree to extend the production cuts to the end of 2018, as Moscow has made it known it feels the rise in the price of oil is mostly benefitting US companies. Iraqi Oil Minister Jabar Al-Luaibi told reporters yesterday he also supported a ninemonth extension. Saudi Energy Minister Khalid Al-Falih told the opening of the monitoring meeting yesterday that cuts needed to be extended as the rebalancing of oil markets was not yet complete.
Novak told reporters after meeting Falih: “We understand that we need to take further steps to rebalance the market ... We have a common understanding (with Falih).”
Debate on Nigeria, Libya
Two sources familiar with OPEC talks said the group may debate capping Nigerian and Libyan output at 1.8 million bpd and 1 million bpd respectively, having exempted the two countries so far due to unrest and lower-thannormal production volumes. The production cuts have been in place since the start of 2017 and helped halve an excess of global oil stocks although those remain at 140 million barrels above the five-year average, according to OPEC.
Russia has signalled it wants to understand better how producers will exit from the cuts as it needs to provide guidance to its private and state energy companies.
“It is important ... to work out a strategy which we will follow from April 2018,” Novak told the monitoring committee. Iraq’s Luaibi said there had been little discussion so far on any exit strategy.
Some Russian producers including Rosneft, run by an ally of President Vladimir Putin, Igor Sechin, have questioned the rationale of prolonging the cuts, saying it will lead to a loss of market share to US firms, which are not reducing output. OPEC, which comprises 14 countries, —Agencies