Oil producers in Russia and Saudi Arabia are pushing to extend the Organization of Petroleum Exporting Countries’ (OPEC) production cuts until June of next year, according to a new report by The Wall Street Journal.
The deal, which lowers the bloc’s output by 1.2 million barrels per day, is already set to extend until March 2018.
Saudi Oil Minister Khalid al-Falih and his Russian counterpart Alexander Novak met to discuss the potential extension last month in St. Petersburg. No clear decision has been reached since then, but both parties are rumored to be urging other OPEC members to back extending the cuts yet again.
According to energy and commodities analysts, a three-month extension would be a logical step to take in the autumn when the oil market sentiment would likely sour again. An extension to June 2018 would also prevent a “severe uptick” in surplus after March next year, as Michael Cohen, head of energy commodities analysis for Barclays, told Platts.
According to Joe McMonigle, senior energy policy analyst at Hedgeye Potomac Research, an extension at the November meeting would be the minimum action OPEC would take.
“The market will be looking for stronger action, like deeper cuts,” McMonigle noted.
Immediately after OPEC announced at the end of May the extension of the cuts into March 2018, oil prices plunged, because the market was expecting a more drastic action, like deeper cuts, that would prove that OPEC really was willing to do “whatever it takes” to bring the market back to balance.
The joint panel also that it planned to invite Libya and Nigeria to attend the next meetings of the committees, in a sign that rising output from those two exempt producers is now a concern for OPEC. Both African nations had originally been granted an exemption to the cuts due to domestic strife that had lowered national oil output.