OPEC will likely agree to extend production cuts for another nine months, delegates said on Tuesday as the oil producer group meets this week to debate how to tackle a global glut of crude.
OPEC’s de facto leader, Saudi Arabia, favours extending the output curbs by nine months rather than the initially planned six months, as it seeks to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel.
On Monday, Saudi Energy Minister Khalid al-Falih won support from OPEC’s second-biggest and fastest-growing producer, Iraq, for a nine-month extension and said he expected no objections from anyone else.
Saudi Arabia’s Gulf ally Kuwait said on Tuesday not every OPEC member was on board for an extension to March 2018, from the initial cut-off of June this year, but most delegates in Vienna said they expected a fairly painless meeting on Thursday.
“The Saudi oil minister’s view seems accurate and no serious objection is expected if at all,” said one delegate, who asked not to be identified as he is not allowed to speak to the media.
“No surprises,” said a second delegate.
A third source added: “I think it will be a smooth meeting to extend through until March 2018, and see what happens with U.S. shale. It will grow but there are limits.”
The Organization of the Petroleum Exporting Countries meets in Vienna on Thursday to consider whether to prolong the deal reached in December in which OPEC and 11 non-members, including Russia, agreed to cut output by about 1.8 million barrels per day (bpd) in the first half of 2017.
The decision pushed prices back above $50 per barrel, giving a fiscal boost to major oil producers. But it also spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing.
Oil prices fell 1 percent on Tuesday after U.S. President Donald Trump proposed to sell half of the United States’ Strategic Petroleum Reserve (SPR) in the next 10 years as well as to speed up Alaskan exploration.
The SPR sales would not start until October 2018 and would amount to just 95,000 bpd, or 1 percent of current U.S. output.
DEEPER CUTS UNLIKELY
The first OPEC delegate said he did not believe OPEC would deepen existing cuts, unless Saudi Arabia and its Gulf allies offered to take the bulk of the hit: “I still believe it is unlikely at this point.”
Saudi’s Falih said on Monday he expected the new deal to be similar to the old one, “with minor changes”.
“He (Falih) has talked to several countries including Norway, including Turkmenistan, including Egypt, and they have made signs of their willingness to join the collaboration,” Kuwait’s oil minister Essam al-Marzouq said on Tuesday.
Norway’s oil ministry said later on Tuesday it had no plan to join cuts but had a good dialogue with OPEC.
Deutsche Bank said the market had priced in a nine-month extension.
“The inclusion of smaller producing non-OPEC countries such as Turkmenistan, Egypt and the Ivory Coast would be a negligible boost, in our view,” Deutsche said. “A deepening of cuts, though, has more potential to provide an upside surprise.”