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The world’s biggest oil producers are close to extending a deal to curb oil production throughout 2018, Opec ministers said on Thursday, with more work needed to shrink swollen stockpiles and underpin prices above $60 a barrel.
Saudi Arabia’s energy minister Khalid al-Falih, speaking ahead of a meeting of Opec, Russia and other producers that represent almost 60 per cent of global production, said the countries were in “perfect alignment” as the kingdom pushes to extend their 1.8m barrel a day supply cuts throughout next year.
“We must stay the course,” Mr Falih said, adding that the oil producers’ alliance was just past “the halfway mark” in drawing down the glut of oil that built up during the oil crash between 2014 and 2016. “If something is working, you don’t let go.”
His remarks in Vienna on Thursday suggest ministers have drawn a line under differences with Russia, the largest oil producer outside Opec, which has been at odds with other members over how long to extend the deal that first came into effect in January.
Oil prices have been pressured this week as Russia pushed for a shorter six-month extension, although on Thursday Brent crude was up 1.6 per cent at $64.10 a barrel. The country’s oil companies have said they risk losing ground to the US shale industry, which has been rejuvenated by the 30 per cent recovery in prices over the past 12 months.
But Opec ministers appeared confident on Thursday that Russia’s energy minister Alexander Novak would now back the cuts throughout next year when it alongside other non-Opec countries sit down with the cartel later on Thursday.
The move would see Russia standing by its oil alliance with Saudi Arabia that was sealed by Russian President Vladimir Putin and King Salman last year and which has dominated crude markets for the past 18 months. Output from both countries equates to more than a fifth of global supplies, or more than 20m barrels a day.
“Our co-operation with the non-Opec countries will continue to the end of 2018,” said Kuwait’s oil minister, Essam al-Marzouq, a close ally of Riyadh.
Ann-Louise Hittle, an oil analyst at Wood Mackenzie who attended the meeting in Vienna, said that while last-minute disagreements could not be ruled out, Opec and its allies appeared to be betting that the growth in US shale would not be as strong as many initially feared.
“It looks like they’re going to get the extension throughout next year, Ms Hittle said. “Their hope is that the tidal wave of US shale some are predicting doesn’t materialise.”
The outlook for the US shale industry has cast a long shadow over Opec since its rapid growth triggered oil’s collapse from above $100 a barrel in 2014. After slowing initially as prices dropped to lows below $30 a barrel, the sector has recovered this year as prices have stabilised.
Forecasts for the still relatively young industry’s supply growth remain in a wide range, however, leaving a question mark over the market’s direction and whether Opec and its allies will end up sacrificing market share as they try to prop up the price.
Mr Falih sought to allay fears, saying more production from traditional oil producers would be needed to meet robust demand, above 1.5m barrels a day for both 2017 and 2018. “We don’t think shale can do it alone.”
Still, given the uncertainty around any supply response, Opec is debating whether to reassess any deal after six months, which some analysts say may undermine oil traders’ confidence in the agreement.
While Saudi Arabia has said it was “premature” to talk of winding down the cuts, this could placate Russia which has sought guidance on how producers would exit the deal if the market was to overtighten.
“If it’s nine months with a midyear review does the market take this positively or negatively, this is still the debate,” Citigroup analyst Eric Lee said. “Does this provide flexibility for ending the cuts earlier.”