Iraq agreed to a proposal from Saudi Arabia and Russia to extend output cuts for nine months in efforts to support oil prices, removing one of the last remaining obstacles to a consensus at the OPEC meeting in Vienna this week.
The Organization of Petroleum Exporting Countries’ second-largest producer, which only reluctantly agreed last year to a six-month output cut, had previously favored prolonging the historic supply cuts by just another six months. Saudi Minister of Energy and Industry Khalid Al-Falih secured the backing of his neighbor for longer curbs after talks in Baghdad with his Iraqi counterpart Jabbar Al-Luaibi.
OPEC meets in Vienna on Thursday to consider whether to prolong the original deal reached in December in which OPEC and 11 non-member countries, including Russia, agreed to cut output by about 1.8 million barrels per day in the first half of 2017.
“The trend now regarding the output deal is to extend for 9 months,” Al-Falih told reporters in the Iraqi capital on Monday, according to Bloomberg. “All I talked to from inside OPEC are supporting the nine months of cuts,” although the final decision won’t be made until the group’s meeting on May 25, he said.
Separately, non-OPEC nations Oman and Mexico also confirmed their support for a nine-month extension.
“There is an initial willingness for one or two countries from the small producers to join,” Al-Falih said. “Slight changes might happen but deal in its general shape will be almost the same we agreed upon last December.”
The supply reductions were initially intended to last six months from January, but the slower-than-expected decline in surplus fuel inventories prompted the group to consider an extension. Data from the U.S. Energy Information Administration indicate that maintaining the curbs into the first quarter of 2018 would bring stockpiles back in line with the five-year average -- OPEC’s stated goal.
Stockpiles are hovering near record highs, partly because of rising production in the United States, which is not part of the existing deal.
Iraq, OPEC's second-largest and fastest-growing oil producer, had until Monday voiced support only for a six-month extension.
The country has the worst record of compliance with its pledged cuts, pumping about 80,000 more barrels of oil a day than permitted during the first quarter. If that deal gets extended to 2018, the nation will have even less incentive to comply because capacity at key southern fields is expanding and three years of fighting Islamic State has left it drowning in debt.
It is the first time in nearly three decades that a senior Saudi energy official has visited Baghdad.