OPEC, Russia head for oil cut extension but wary of overheat

VIENNA: OPEC and Russia look set to prolong oil supply cuts until the end of 2018 this week while signalling that they may review the deal when they meet again in June if the market overheats.

With oil prices rallying above US$60 per barrel, Russia has questionedthewisdomofextending 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 met in Vienna on Wednesday – one day ahead of a full OPEC gathering – and recommended extending the cuts to the end of 2018.

At present, the cuts expire in March.

“That’s one of the recommendations,” Kuwait’s Oil Minister Essam al-Marzouq told reporters when asked whether the committee had agreed on a ninemonth extension, among other matters.

Russian Energy Minister Alexander Novak was, however, less certain about the duration.

“The market has not been fully balanced yet. Joint efforts are needed after April 1.

Everybody has recommended that the agreement could be extended and tomorrow such concrete details will be discussed,” Novak said.

Several sources familiar with the talks have said Russia had suggested an option of reviewing the deal at the next OPEC meeting in June in case the oil market overheats.

“In reality it would be only a three-month true extension with the review in June,” said Olivier Jakob from Petromatrix consultancy.

Benchmark Brent and US crude prices fell for a third consecutive session on Wednesday but Brent still traded above US$63 per barrel.

Saudi Energy Minister Khalid al-Falih told the monitoring meeting on Wednesday that cuts needed to be extended as the rebalancing of oil markets was not yet complete.

Iranian oil minister Bijan Zanganeh, who fought Falih on many previous occasions, said he would agree with extending cuts by either six or nine months to help the market rebalance.

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).” — Reuters