All OPEC members support extending their oil production cuts until the end of 2018, although Russia hasn’t yet committed to the proposal before Thursday’s meeting in Vienna, said people familiar with the matter.
While Russia and the Organization of Petroleum Exporting Countries have crafted the outline of a deal to continue their curbs for nine months beyond the current end-March expiry, Moscow still has concerns that supporting oil prices above $60 a barrel will help U.S. shale rivals, the people said, asking not to be identified because the information is private.
This situation underscores the dilemma faced by the 24 oil producers who forged a historic agreement to curb output a year ago. Signs of success are clear — global fuel stockpiles are draining and crude prices are near two-year highs. Yet ministers gathering in the Austrian capital this week have little idea how U.S. shale producers will respond if they continue to restrain their own output until the end of 2018. Until recently, Russia and OPEC member Kuwait had been insisting the decision on extension should be delayed until early next year, hoping the outlook would be clearer.
“We support an extension but we haven’t agreed on a target” for how long they should last, Kuwaiti Oil Minister Issam Almarzooq said in Vienna today. That will be considered by a meeting on Wednesday of the ministerial monitoring committee overseeing the agreement, he said.
A meeting today of the sub-ministerial Joint Technical Committee of OPEC and non-OPEC nations recommended that supply cuts be extended until the end of 2018, a delegate said.
OPEC, Russia and its partners have demonstrated unprecedented unity and compliance since their agreement to cut 1.8 million barrels a day of crude supply from world markets. They readily agreed to prolong the deal back in May after it became clear the initial six months of cuts hadn’t eliminated the oversupply. Fuel inventories in industrialized countries have halved since January, but remain 140 million barrels above the five-year average, OPEC Secretary-General Mohammad Barkindo said on Monday.
Yet Moscow hesitated over the need for a second extension right now as well as its duration, given the current agreement doesn’t expire until the end of March. After days of talks, Russia and Saudi Arabia were said last week to have agreed a framework for another nine months of cuts, although both sides were still hammering out crucial details, including new language that would link the size of the curbs to the health of the oil market.
Everyone is in favor of an extension and different options will be discussed at Thursday’s meeting, Russian Energy Minister Alexander Novak said in an interview with RBC television on Friday. The Ministry’s press service had nothing to add beyond these comments when contacted by Bloomberg on Tuesday.
“The market is at a much better position than where it was last year” thanks to the supply-cuts agreement, United Arab Emirates Energy Minister Suhail Mazrouei told reporters in Dubai on Tuesday. “We are looking hopefully for another year of correction and recovery.”
The outlook for shale is the chief source of uncertainty. OPEC officials invited industry experts to brief them on the topic last week and were disturbed by the diversity of opinions. Veteran crude trader Andy Hall, whose decision to close his main hedge fund this year was partly driven by shale’s unpredictability, told the organization that 2018 growth estimates vary from 500,000 barrels a day to 1.7 million a day.
Producers will discuss in Vienna the possibility of extending the cuts until the end of next year, Mazrouei said, without commenting on whether there was a consensus for this option. Iraq will go with the consensus whether it’s for six or nine months, Oil Ministry spokesman Asim Jihad said in an interview in Baghdad on Monday.
OPEC members believe anything less than a nine-month extension would trigger a drop in oil prices, said the people familiar with the matter.
“There is always debate — every country has an equal weight to voice their view,” Saudi Energy Minister Khalid Al-Falih told reporters in Dubai. “We’re looking forward to getting everybody engaged in a robust discussion and we’ll come up with the right decision.”
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