Oil Productions Cuts Likely To Be Extended By OPEC

Oil Productions Cuts Likely To Be Extended By OPEC

With oil prices nudging steadily higher, market expectations are for crude-pumping countries to prolong their deal to curb output at a meeting at OPEC headquarters in Vienna on Thursday.

Markets could be disappointed, however, with Russia reportedly not yet fully on board with an extension, and Iraq one of the largest producers, ignoring the agreement which is due to expire on March 31.

Proponents want to extend it to the end of 2018.

The deal by 24 producers, reduced production by 1.8 million barrels per day, first struck a year ago, has already been extended once.

It has borne fruit, helping reduce a global glut that sent oil prices to a less than $30 a barrel in early 2016, a level that helped consumers but hurt producers' earnings.

Brent Crude is now nearing $65 per barrel, while fellow benchmark West Texas Intermediate has been heading for $60, with inventories approaching levels that are more normal.

The price has also been helped by growing optimism about the global economy and its effect on buoying oil demand, not least from China.

"We have accomplished what naysayers thought would be impossible," Mohammad Sanusi Barkindo, OPEC secretary general, said on Monday.

"The current market conditions, the returning level of confidence and optimism in the industry are all evidence of the outcome of our joint efforts," he said.

Outline deal

Members of the OPEC cartel and Russia have created the outline of an agreement to extend the curbs to the end of 2018, according to Bloomberg News.

Saudi Arabia looks to be supportive since higher oil prices would help boost the value of national oil company Saudi Aramco, some of which it wants to sell next year.

OPEC and Russia are still hammering out crucial details, however, Bloomberg reported. Russian oil companies appear to be particularly reluctant.

In September, Russian Energy Minister Alexander Novak suggested it was premature to discuss an extension, saying he wanted to wait until January for further data.

Moreover, Iraq, OPEC’s second biggest producer after Saudi, has not complied with the oil agreement in any of the previous 10 months since the OPEC deal began.

Iraq’s current production capacity is 4.8 million bpd, while under the OPEC deal, Iraq is supposed to be cutting 210,000 bpd off its October 2016 level for a total of 4.351 million bpd.

Instead, they are aiming to increase production to 5 million bpd to increase reserves and offset their financial crisis.

Iraq recently invited foreign firms to bid to develop nine new oil and gas blocks in border regions and offshore.

A further possible complication could be the dramatic recent deterioration of relations between regional rival Saudi Arabia and Iran, both of which are members of OPEC.

Saudi Arabia's Crown Prince Mohammed bin Salman last week called Iran's supreme leader "the new Hitler of the Middle East.”

Iran, following the lifting of sanctions under the 2015 nuclear deal, was allowed a moderate increase in oil production under the producers' accord.

However, Mallinson said that, like in the past such as during the Iran-Iraq war (1980-88), the rivals should still be able to work together at OPEC, albeit through gritted teeth.

"So that shouldn't be too much of a concern for the oil market," he said.