OPEC, Russia set for oil cut extension but wary of
Send a link to a friend
[November 29, 2017]
By Ernest Scheyder, Ahmad Ghaddar and Shadia Nasralla
VIENNA (Reuters) - 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 <LCOc1> 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 U.S. 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
Six ministers from OPEC and non-OPEC oil producers including Saudi
Arabia and Russia will gather in Vienna on Wednesday - one day ahead of
a full OPEC meeting - 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 U.S. crude prices declined on Wednesday for a third
consecutive day although Brent <LCOc1> remained above $63. [O/R]
United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui said
on Tuesday that cutting output through all of 2018 was still the main,
but not only, scenario.
Iraqi Oil Minister Jabar al-Luaibi told reporters on Wednesday he also
supported a nine-month extension.
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-than-normal production volumes.
[to top of second column]
A flag with the Organization of the Petroleum Exporting Countries
(OPEC) logo is seen during a meeting of OPEC and non-OPEC producing
countries in Vienna, Austria September 22, 2017. REUTERS/Leonhard
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 signaled 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. Luaibi said there had been little discussion so far on any exit
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 U.S. firms, which are not reducing
OPEC, which comprises 14 countries, has traditionally been much less worried
about exit strategies as its members have been known for reducing compliance and
cheating on their quotas towards the expiry of such deals.
"OPEC and Russia will both realize they are losing market share and they will be
better off going back to a more competitive environment," the head of commodity
research at Citi, Ed Morse, told Reuters.
Citi's rival Goldman Sachs said in a note on Tuesday: "We continue to expect a
gradual ramp up in OPEC and Russian production from April onward."
(Additional reporting by Rania El Gamal, Alex Lawler and Vladimir Soldatkin;
Writing by Dmitry Zhdannikov; Editing by Dale Hudson)
[© 2017 Thomson Reuters. All rights
Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.