Doubling down on an effort to eliminate a supply surplus just as its impact on prices wanes, Saudi Arabia and Russia signaled they could extend production cuts into 2018.
They would consider prolonging their output reductions for longer than the six-month extension widely expected to be agreed at the OPEC meeting on May 25, the world’s largest crude producers said publicly for the first time in separate statements just hours apart on Monday.
News firm Bloomberg reported citing four delegates, who asked not to be identified because the talks were private that the possibility of deepening the supply curbs have also been discussed by ministers from some members of the Organization of Petroleum Exporting Countries. That the discussions resulted in any kind of agreement for additional cuts, was not said by the delegates.
Russia’s Energy Ministry said that the nation is ready to support extending the oil deal beyond 2017. “We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” Minister Alexander Novak said in a statement.
After talks with other nations participating in the accord, he was “rather confident the agreement will be extended into the second half of the year and possibly beyond”, said his Saudi counterpart Khalid Al-Falih speaking in Kuala Lumpur earlier Monday.
Oil erased its gains after it advanced briefly after Novak’s comments.
Russia and Saudi Arabia are reaffirming their commitment to the deal amid growing doubts about its effectiveness and they are the largest of the 24 nations that agreed to cut production. Concern that OPEC and its partners are failing to reduce an oversupply has been raised by surging U.S. production. Since their deal late last year, oil has surrendered most of its gains.
“The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average,” Al-Falih said.
The Saudi minister said he’s confident the global oil market will soon rebalance and return to a “healthy state”, even as U.S. shale output growth and the shutdown of refineries for maintenance have slowed the impact of cuts by OPEC and its partners.
Kuwait’s Oil Minister Issam Almarzooq said in emailed statement to Bloomberg that oil producers almost have an agreement to extend the cuts for six months or more. Algeria’s Energy Minister Noureddine Boutarfa said that the nation supports prolonging the agreement beyond 2017.
And as drillers pump more from shale fields, rising to the highest level since August 2015 is production in the U.S., which is not part of the agreement, even as OPEC and its allies curbed supply. But falling for the past four weeks from record levels at the end of March, American crude inventories are showing some signs of shrinking.
“We need to see the OPEC/non-OPEC deal extended to 2018, otherwise there’s a risk oil prices will fall below $40,” Alexandre Andlauer, an analyst at AlphaValue SAS in Paris, said by email. “We will have to wait two years to get a stable Brent oil price at around $55.”
(Adapted from Bloomberg)