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OPEC to back 9-month extension of oil production cut as meeting begins tomorrow

All members of the Organisation of Petroleum Exporting Countries (OPEC) support extending their oil production cuts until the end of 2018, while they wait for Russia to commit to the proposal before tomorrow’s meeting in Vienna.

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Bloomberg reported yesterday that some people who were privy to the deal said while Russia and OPEC have crafted the outline of a deal to continue their curbs for nine months beyond the current end-March expiry date, Moscow still has concerns that supporting oil prices above $60 a barrel will help U.S. shale rivals.

This situation underscores the dilemma faced by the 24 oil producers who forged a historic agreement to curb output a year ago. 

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Signs of success are clear – global fuel stockpiles are draining and crude prices are near two-year highs. Yet ministers gathering in the Austrian capital tomorrow have little idea how U.S. shale producers will respond if they continue to restrain their own output until the end of 2018. 

“The market is at a much better position than where it was last year” thanks to the supply-cuts agreement, United Arab Emirates Energy Minister Suhail Mazrouei told reporters in Dubai on Tuesday. “We are looking hopefully for another year of correction and recovery.”

OPEC, Russia and its partners have demonstrated unprecedented unity and compliance since their agreement to cut 1.8 million barrels a day of crude supply from world markets. Fuel inventories in industrialized countries have halved since January, but remain 140 million barrels above the five-year average, OPEC Secretary-General Mohammad Barkindo said on Monday.

‘‘Everyone is in favour of an extension and different options will be discussed at tomorrow’s meeting,’’ Russian Energy Minister Alexander Novak said in an interview with RBC television on Friday. The ministry’s press service had nothing to add beyond these comments when contacted by Bloomberg yesterday.

The outlook for shale is the chief source of uncertainty. OPEC officials invited industry experts to brief them on the topic last week and were disturbed by the diversity of opinions.

Veteran crude trader Andy Hall, whose decision to close his main hedge fund this year was partly driven by shale’s unpredictability, told the organization that 2018 growth estimates vary from 500,000 barrels a day to 1.7 million a day.

Producers will discuss in Vienna the possibility of extending the cuts until the end of next year, Mazrouei said, without commenting on whether there was a consensus for this option. Iraq will go with the consensus whether it’s for six or nine months, Oil Ministry spokesman Asim Jihad said in an interview in Baghdad on Monday.

OPEC members believe anything less than a nine-month extension would trigger a drop in oil prices, said those familiar with the matter.

Meanwhile oil prices eased yesterday, weighed down by uncertainty over the outcome of an OPEC meeting this week at which an extension to its price-supporting oil output cuts will be discussed. 

Brent crude oil fell 44 cents, or 0.7 percent, to $63.40 a barrel. U.S. crude was 32 cents, or 0.5 percent, lower at $57.79, after falling 1.4 percent in the previous session. 

The OPEC is heading for tougher-than-expected policy talks tomorrow as its leader Saudi Arabia pushes to extend output cuts by nine months while non-member Russia is hesitating on the curbs’ duration due to worries that the market could overheat. 

 

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