OPEC set to extend oil production curbs by nine months

GP: Saudi Al-Falih OPEC 190701 EU
Khalid Al-Falih, Saudi Arabia’s energy and industry minister, arrives for the 15th Joint Ministerial Monitoring Committee (JMMC) meeting in Vienna, Austria, on Monday, July 1, 2019.
Stefan Wermuth | Bloomberg | Getty Images

OPEC and its allies looked all but certain to extend oil supply cuts by nine months, after several members of the Middle East-dominated producer group endorsed a policy designed to support oil prices amid a weakening global economy.

Saudi Arabia’s Energy Minister Khalid al-Falih reportedly said most OPEC members would like to see a nine-month deal extension.

A deal is now subject to approval from non-OPEC allies at a meeting on Tuesday, with Iraq’s oil minister saying he did not anticipate any complications.

Earlier in the day, Iranian Oil Minister Bijan Zanganeh told reporters he had “no problem” with supporting oil supply cuts by nine months.

Tehran, which had been OPEC’s third-largest producer prior to the re-imposition of U.S. sanctions, has previously objected to policies put forward by arch-rival Saudi Arabia.

“It is going to be an easy meeting as my stance is very clear,” Zanganeh told reporters in Vienna, Austria.

OPEC is set to debate an extension of oil production cuts during its meeting on Monday, before getting the deal endorsed by non-members, such as Russia, on Tuesday.

The producer group and its allies have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the U.S. — which has become the world’s top producer this year ahead of Russia and Saudi Arabia.

The U.S. is not a member of OPEC, nor is it participating in the supply pact. Washington has demanded Riyadh pump more oil to compensate for lower exports from Iran after slapping fresh sanctions on Tehran over its nuclear program.

Oil prices rose sharply, with international benchmark Brent crude trading at $66.28 per barrel, up around 2.4%. Meanwhile, U.S. crude futures stood at $59.95 per barrel, more than 2.5% higher.

Saudi Arabia and Russia

Speaking to reporters in the Austrian capital on Sunday, United Arab Emirates Minister of Energy and Industry Suhail al-Mazrouei said an extension of a deal originally struck in December last year — which called for an output cut of 1.2 million barrels per day — would likely be necessary.

“The current condition of the market, in my view, would require an extension,” al-Mazrouei said. The output-cutting pact expired on Sunday.

Al-Mazrouei’s comments came after Russian President Vladimir Putin announced over the weekend that Russia had reached an agreement with Saudi Arabia to extend the oil output deal by six to nine months.

“We will support the extension, both Russia and Saudi Arabia,” said Putin, who met Saudi Crown Prince Mohammed bin Salman at a Group of 20 (G-20) summit in Japan. “As far as the length of the extension is concerned, we have yet to decide whether it will be six or nine months. Maybe it will be nine months.”

Saudi Energy Minister Khalid al-Falih said Sunday that the deal would most likely be prolonged for nine months and no deeper cuts were required.

Asked about the deal extension potentially being decided at the G-20 summit instead of the meeting of OPEC and its allies, al-Mazrouei said: “OPEC is … an organization that each country can veto a decision, that’s why … every vote counts.”

OPEC on the ‘verge of collapse’

Iran’s oil minister criticized “unilateralism” among some members of the energy alliance, warning it could ultimately lead to the death of OPEC.

Speaking to reporters in Vienna, Austria on Monday, Zanganeh said: “The important thing to me is that OPEC remains OPEC. It has lost its authority and it is on the verge of collapse.”

“Iran is not going to leave OPEC… But I believe OPEC is going to die if these processes continue, ” Zanganeh said, referring to Russia-Saudi decision.

“The Iranians want higher oil revenue, they need higher prices so they are not going to oppose an agreement,” Helima Croft, head of global commodities strategy at RBC told CNBC’s Dan Murphy on Monday.

“They would support it going deeper in terms of a cut but they did declare that they are opposed to this charter arrangement which would formalize the non-OPEC and OPEC agreement,” Croft said.

Zanganeh said Tehran would not support a long-term charter of cooperation between OPEC and outsiders that was supposed to be agreed this week.

This entry was posted in Energy, Oil, World News. Bookmark the permalink.

Leave a Reply