Oil Prices Rise As Expected Decision To Extend Cuts Nears

Ivan Schwartz
May 25, 2017

Oil prices were stable on Wednesday, supported by confidence that an Opec-led output cut aimed at tightening supply would be extended to all of 2017 and the first quarter of 2018.

OPEC members Iraq and Algeria as well as top non-OPEC producer Russian Federation also said they support a nine-month extension.

Opec oil ministers head to their meeting in Vienna to morrow facing a long road ahead before they can expect to reach their objective of a more balanced oil market.

For the next round of OPEC cuts, Cohen and Russell said that specific quota levels and the number of countries participating hasn't yet been finalised.

Reportedly, a nine-month extension is under consideration, with Iraq - an OPEC member that has been hostile towards production curbs - apparently open to the idea.

Marzouq also said Saudi Arabia had talked to three oil producers which have not so far joined the cuts - Turkmenistan, Norway and Egypt - and all three had signalled willingness to join.

VIENNA-Saudi Arabia is pushing the OPEC oil cartel and other big producers gathered here this week to extend crude production cuts for another nine months.

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Saudi Energy Minister Khalid al-Falih gave the thumbs up when asked whether the committee had agreed on a nine-month extension.

The Organization of Petroleum Exporting Countries and 11 non-members agreed late previous year to cut output by as much as 1.8 million barrels a day.

Earlier in the session oil prices dropped on the White House plan to sell off half of the nation's 688 million-barrel oil stockpile from 2018 to 2027 aims to raise $16.5 billion and help balance the budget.

Meanwhile, non-Opec producer Oman has said it is "not opposed" to the deal, but was seeking "more clarity and discussion" on the matter, according to newswire Reuters. "If the need arises for any correction, this can be done in coming ministerial conferences", the first OPEC delegate said. The supply reductions were initially meant to run for six months from January, but the slower-than-expected decline in surplus inventories prompted the group to consider an extension.

"Make no mistake, it is all about oil revenues", said Bhushan Bahree, a senior director at consultant IHS Markit.

Mexico, which is not in OPEC, has seen its oil industry atrophy in the past 50 years due to underinvestment and hostile regulation of foreign partners.

The number of U.S. oil rigs keeps climbing, and with a more efficient cost base Cohen and Russell said that United States drilling companies should remain profitable unless West Texas Intermediate (WTI) crude falls consistently below $US50 a barrel. "With oil stocks nowhere near OPEC's... objective of the recent five-year average level, an extension of cuts seems all but a foregone conclusion", French bank BNP Paribas said. "A deepening of cuts, though, has more potential to provide an upside surprise".

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