Saudi Arabia and Russia have agreed in principle to extend productions cuts until the end of March 2018, in an attempt to outweigh increasing U.S. production and effectively shrink a global glut and prop up crude prices.
Extending the curbs at already agreed-upon volumes is needed to reach the goal of reducing global inventories to the 5-year average, the energy ministers of the world’s biggest oil producers said in a joint press conference in Beijing according to Bloomberg.
“There has been a marked reduction in inventories but we are not where we want to be in terms of reaching the five-year average,” Saudi Arabia’s energy minister Khalid Al-Falih said on Bloomberg TV during the event with Russia’s Alexander Novak.
Al-Falih has been in discussions with energy ministers from OPEC and non-OPEC countries that were part of the agreement in December to cut production for six months starting January with the option to extend for another six months.
While oil prices were initially lifted after the agreement, rig counts and shale production from United States’ Permian Basin has risen faster than anticipated and wiped out most of the gains in oil prices since December.
“Global inventories are not that easy to manage… as well as many forces acting on supply and demand,”Al-Falih said.
OPEC and other countries party to the agreement such as Russia will not be able to bring down the inventories to the desired level by the end of June, he said.
“We also came to the conclusion that ending (production cuts) will be better by the end of first quarter of 2018 of the two nations,” Al-Falih said speaking of Saudi Arabia and Russia. The deal would extend similar allocation terms agreed upon in December, he added.
OPEC members agreed in November to cut 1.2 million barrels a day of oil production, and several non-members, including Russia, agreed in December to contribute a combined 600,000 barrels a day of output reductions.
“We have reached out to many of our colleagues and there is a general consensus that this is the right thing to do, he said.
Energy ministers will hold further consultations and present their positions ahead of a meeting between OPEC and other nations that are part of the agreement later this month in Vienna.
“Preliminary consultations show that everybody is committed” to the output agreement and no country is willing to quit, said Novak. “I don’t see reasons for any country to quit.” The energy ministry has held preliminary discussions with Russian companies on the matter, he said.