Plans of
the Organization of the Petroleum Exporting Countries (OPEC) and other
supplies, especially Russia, to possibly continue curbing oil production for
the rest of 2018 and potentially into 2019 gave a boost to oil prices.
“It’s all
about sending a signal to the oil markets that if necessary this now OPEC Plus
deal could be extended indefinitely,” Alexei Kokin, a senior oil and gas
analyst at UralSib Financial Corp in Moscow, told New Europe by phone March 30.
He noted
that Riyadh is trying to convey the impression that Saudi Arabia and Russia are
the largest members of the OPEC, non-OPEC deal who would keep the agreement in
place for much longer than 2018 or even 2019. “This could be an ongoing sort of
revolving arrangement. If it’s kept in place for a long time then presumably it
won’t be on the same terms and there would be periodic revisions just like OPEC
revises its quotas,” Kokin said.
The UralSib
oil and gas analyst said he doesn’t think that extending the OPEC/non-OPEC
production cut deal would have much of an impact on oil prices right now. “It
would just give the market some idea what to expect,” Kokin said.
According
to Reuters, US WTI crude futures CLc1 were at $64.63 a barrel on March 29 while
Brent crude futures were at $69.76 per barrel.
Traders are
concerned, however, with increasing US oil production and the further expansion
of US crude oil stocks. OPEC and non-OPEC producers led by Russia started
cutting output last year to stave off oversupply and boost prices.
Brent has
risen by around a quarter since then.
Reuters
quoted sources this week as saying the cartel and its allies were set to keep
their deal on cutting production for the rest of 2018.
Bloomberg
has since quoted Iraq’s Oil Minister Jabbar al-Luaibi who told reporters at an
energy conference in Baghdad that some OPEC and non-OPEC producers have
suggested extending global output cuts beyond 2018 and up to the middle of next
year.
OPEC is
looking for a long-term cooperation with other global producers, OPEC
Secretary-General Mohammad Barkindo said at the same conference.
OPEC
kingpin Saudi Arabia has signaled that it wants to continue its cooperation
with Russia. Bloomberg quoted Saudi Energy Minister Khalid Al-Falih as saying
that the countries won’t stop collaborating once the market is in balance and
that their joint efforts may include production cuts.
The
potential extension of the deal was announced during Saudi Crown Prince
Mohammed bin Salman’s recent tour of the United States. The Crown Prince told
Reuters that Riyadh and non-OPEC producer Russia were considering extending an
alliance on oil curbs that began in January 2017 after oil prices crashed. “We
are working to shift from a year-to-year agreement to a 10-20 year agreement,”
he told Reuters in interview in New York. “We have agreement on the big
picture, but not yet on the detail.”
King Salman
became the first Saudi monarch in history to visit Russia in October 2017.
During his visit, he oversaw the signing of several bilateral energy
agreements.
Kokin told
New Europe on March 30 that the Russian government acknowledges the usefulness
and the benefit of the OPEC/non-OPEC deal. “It’s obviously getting much higher
prices; it’s getting much better taxes, much higher revenues from this deal.
It’s best having $65 or $70 (per barrel) rather than $40,” he said.
Kokin
noted, however, that Russian companies have their own production plans and they
might not like the current oil production levels.
“There
might be some tension between basically the idea that this deal should be kept
and the Russian oil sector in general which is perhaps more aggressive in its
output plans,” Kokin said. “But I don’t think it will be such an enormous bone
of contention because my guess is that Russia can’t really increase output that
much just because from that base you don’t really go up 5 percent per year for
several years. It doesn’t work. We’re talking about relatively small amounts,”
the UralSib analyst said. “We’re talking about changes of maybe half a million
barrels and that’s kind of the maximum,” he said, adding that in a few years an
increase of that would be realistic because demand is also growing.
https://www.neweurope.eu/article/saudi-arabia-russia-may-extend-opec-non-opec-oil-output-deal/