OPEC: Oil Output Cuts May Be Extended
Saudi Arabia and Russia signaled they could extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus just as its impact on prices wanes, Bloomberg have learnt.
In separate statements just hours apart on Monday, the world’s largest crude producers said publicly for the first time 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.
“We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” the Russian Energy Minister Alexander Novak said in a statement.
Speaking in Kuala Lumpur earlier Monday, his Saudi counterpart Khalid Al-Falih said he was “rather confident the agreement will be extended into the second half of the year and possibly beyond” after talks with other nations participating in the accord.
Oil advanced briefly after Novak’s comments, but later erased its gains to trade 0.4% lower at $48.90/bbl in London.
Russia and Saudi Arabia, the largest of the 24 nations that agreed to cut production, are reaffirming their commitment to the deal amid growing doubts about its effectiveness. Surging U.S. production has raised concern OPEC and partners are failing to reduce an oversupply. Oil has surrendered most of its gains since their deal late last year.
“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. While U.S. shale output growth and the shutdown of refineries for maintenance have slowed the impact of cuts by OPEC and its partners, the Saudi minister said he’s confident the global oil market will soon rebalance and return to a “healthy state.”
As OPEC and its allies curbed supply, production in the U.S., which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields. But American crude inventories are showing some signs of shrinking, falling for the past four weeks from record levels at the end of March.
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