Saudi Arabia, Kuwait signal likely extension of oil supply cuts

Leading Gulf oil producers Saudi Arabia and Kuwait gave the clearest signal yet that OPEC plans to extend into the second half of the year a deal with non-OPEC producers to curb oil supplies.

Consensus is growing among oil producers that their supply restraint agreement should be extended after its initial six-month term, but there is as yet no agreement, Saudi Energy Minister Khalid al-Falih said on Thursday.

“There is consensus building but it’s not done yet,” he told reporters on the sidelines of a conference in the United Arab Emirates. Asked about non-OPEC producer Russia, Falih replied: “We are talking to all countries. We have not reached an agreement for sure, but the consensus is building.”

Kuwait’s oil minister Essam al-Marzouq, at the same event, said he expected to see an extension of the agreement.

“We have a noticeable increase in compliance from non-OPEC, which shows the importance of extending the agreement,” Marzouq said.

“Russia is on board preliminarily … Compliance from Russia is very good. Everyone will continue on the same level,” he said.

If OPEC and non-OPEC oil producers decide to extend their six-month agreement, the cuts may become less deep as oil demand is expected to be stronger for seasonal reasons in the second half of 2017, Marzouq said.

He said OPEC would extend the deal if there was consensus among non-OPEC producers, and that producers were always looking for more non-OPEC members to join the agreement.

One African country has expressed interest in joining, Marzouq said, without identifying it.

OPEC is keen that non-OPEC play its part in reducing world inventories to support a price rise that has stalled near $55 a barrel. Crude is up from lows last year below $30.

The Organisation of the Petroleum Exporting Countries (OPEC) meets on May 25 to discuss extending supply curbs with non-OPEC countries that total 1.8 million barrels daily, two-thirds of that from OPEC.

Falih said there was “an initial agreement” that the oil cuts may need extending to drain high global inventories. He said talks were ongoing.

“Our target is the level of inventories. This is the main indicator for the success of the initiative,” Falih said.

While inventories held at sea and in producer countries have dropped, they remain stubbornly high in consumer regions, particularly in Asia and the United States.

The International Energy Agency said last week that inventories in industrialised countries were still 10 percent above the five-year average, a key gauge for OPEC.

Omani Oil and Gas Minister Mohammad bin Hamad al-Rumhy said a “quite high” number of producers favoured extending the supply restraint agreement.

“The number of countries that are supporting the extension I think would be quite high, percentage-wise,” Rumhy told reporters.

However, Iraq may seek to be exempt and ask to boost its own output, the leader of the nation’s Shi’ite ruling coalition Ammar al-Hakim told Reuters.

Speaking in Cairo, Hakim cautioned that Baghdad could ask to be exempted from taking part in the supply curbs as the nation needed its oil income to fight Islamic State.

“Given these sensitive circumstances, it is the right of Iraq to hope for an exemption by the other OPEC member states and have an opportunity to increase its production,” Hakim, an influential cleric, said in an interview late on Wednesday.

“But we are with the principle of reducing the overall OPEC supply to lift prices.”

Source: Reuters