OPEC supply cuts expected to be expanded into 2018

OPEC supply cuts extension pushed by Saudi Arabia

Ministers and delegates attending the meeting of the Organization of Petroleum Exporting Countries in Vienna this week say the OPEC supply cuts agreement is likely to be extended and sources say the group will also discuss how to tackle the stubborn global crude glut.

Top producer Saudi Arabia is pushing for a nine-month extension to the pact which was originally set to expire in June.  Riyadh is looking to speed up market rebalancing and keep oil prices from falling below the $50/barrel mark.

The Saudis gained support for the nine-month extension from Iraq and Saudi Arabia’s Energy Minister Khalid al-Falih ways he does not expect any objections from any other countries.

“The Saudi oil minister’s view seems accurate and no serious objection is expected if at all,” one OPEC delegate who asked to not be identified told Reuters. “No surprises,” said a second delegate.

But, according to Reuters, Kuwait said at a meeting on Tuesday that not every OPEC member was in favour of the extension to the first quarter of 2018, but most ministers and delegates said they did not expect many complications at the meeting.

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Ecuador’s Oil Minister Carlos Perez believes the participants will discuss the length of an extension to the agreement and will likely opt for a nine-month long deal.

“Six and nine months are both proposals on the table … we will support the majority, probably the nine months,” Perez told reporters after arriving in Vienna on Tuesday.

He did not think deeper cuts would be on the table.  “Not at this point, I don’t think so.”

Algeria’s Energy Minister Noureddine Boutarfa said OPEC was discussing the nine-month extension, but not increasing the amounts of cuts.

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

A surprising development at the talks is the quiet support for the prolonging of the pact from Saudi Arabia’s long time rival Iran.

“It has been some time since we had such a strong consensus going into an OPEC meeting,” BNP Paribas’s commodities strategist Harry Tchilinguirian told Reuters.

“Despite a supply cut extension being factored in by the market, oil prices have made only modest progress. It may take more than an extension to rekindle bullish spirits,” he added.

The Reuters report says two OPEC sources have said it is possible the cartel could agree to a one-year extension, though most said discussions would likely focus on nine-months as seasonal demand was weak in the first quarter.

Falih said he expected the new deal to be similar to the current one, “with minor changes”.

For the most part, participants have met their production reduction pledges, which has resulted in an increase in oil prices since the deal was announced.  However, the boost in prices also spurred increased activity in the US shale plays, which slowed the rebalancing of the bloated market.