OPEC set to prolong oil cuts as delegates predict smooth meeting

 23 May 2017 - 17:26

OPEC set to prolong oil cuts as delegates predict smooth meeting
Logo of OPEC at the OPEC headquarters in Vienna. (AFP / JOE KLAMAR)

By Rania El Gamal and Alex Lawler / Reuters

VIENNA: OPEC will likely agree to extend production cuts for another nine months, delegates said on Tuesday as the oil producer group meets this week to debate how to tackle a global glut of crude.

OPEC’s de facto leader, Saudi Arabia, favours extending the output curbs by nine months rather than the initially planned six months, as it seeks to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel.

On Monday, Saudi Energy Minister Khalid al-Falih won support from OPEC’s second-biggest and fastest-growing producer, Iraq, for a nine-month extension and said he expected no objections from anyone else.

The Organization of the Petroleum Exporting Countries meets in Vienna on Thursday to consider whether to prolong the deal reached in December in which OPEC and 11 non-members, including Russia, agreed to cut output by about 1.8 million barrels per day (bpd) in the first half of 2017.

The decision pushed prices back above $50 per barrel, giving a fiscal boost to major oil producers. But it also spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing.

Saudi Arabia’s Gulf ally Kuwait said on Tuesday not every OPEC member was on board for an extension to March 2018, but most delegates in Vienna said they expected a fairly painless meeting on Thursday.

“The Saudi oil minister’s view seems accurate and no serious objection is expected if at all,” said one delegate, who asked not to be identified as he is not allowed to speak to the media.

“No surprises,” said a second delegate.

A third source added: “I think it will be a smooth meeting to extend through until March 2018, and see what happens with U.S. shale. It will grow but there are limits.”

Algerian Energy Minister Noureddine Boutarfa said on Tuesday that OPEC was discussing a possible nine-month extension, with curbs kept at the same level as under the group’s existing deal.

“Right now we are talking about nine months,” Boutarfa told reporters soon after arriving in Vienna.

Two OPEC sources said a one-year extension was also an option, though others said most discussions were centring on nine months due to weak seasonal demand in the first quarter.

“The longer the commitments by OPEC and non-OPEC for stabilising the market, the more certainty there is in the market, which is good for all the stakeholders. If the need arises for any correction, this can be done in coming ministerial conferences,” the first OPEC delegate said.

Another delegate, however, said a one-year extension was unlikely to garner wide support.

Oil prices initially fell 1 percent on Tuesday after U.S. President Donald Trump proposed to sell half of the United States’ Strategic Petroleum Reserve (SPR) in the next 10 years as well as to speed up Alaskan exploration.

By 1415 GMT, Brent crude was trading flat.

The SPR sales would not start until October 2018 and would amount to just 95,000 bpd, or 1 percent of current U.S. output.

DEEPER CUTS UNLIKELY

The first OPEC delegate said he did not believe OPEC would deepen existing cuts, unless Saudi Arabia and its Gulf allies offered to take the bulk of the hit: “I still believe it is unlikely at this point.”

Saudi’s Falih said on Monday he expected the new deal to be similar to the old one, “with minor changes”.

“He (Falih) has talked to several countries including Norway, including Turkmenistan, including Egypt, and they have made signs of their willingness to join the collaboration,” Kuwait’s oil minister Essam al-Marzouq said on Tuesday.

Norway’s oil ministry said later on Tuesday it had no plan to join cuts but had a good dialogue with OPEC.

Deutsche Bank said the market had priced in a nine-month extension.

“The inclusion of smaller producing non-OPEC countries such as Turkmenistan, Egypt and the Ivory Coast would be a negligible boost, in our view,” Deutsche said. “A deepening of cuts, though, has more potential to provide an upside surprise.”

(Additional reporting by Ahmad Ghaddar and Ernest Scheyder; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)

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