It seems like the OPEC+ production cut agreement will likely be extended during the second half of 2019. Saudi energy minister Khlaid al-Falih assured that only Russia is undecided regarding the extension.
OPEC+ seeking to extend the agreement
For two months now, the world oil market has been closely following the negotiations between Russia and OPEC, which should determine their production policy by the end of 2019. The famous agreement of the OPEC + countries on the joint regulation of oil production has been in place for three years now, making a considerable contribution to the stabilization of oil prices.
However, the impact of geopolitical factors has made analysts consider is an extension of the OPEC+ production cut agreement will be effective in the future.
Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid A. Al-Falih took part in the St. Petersburg International Economic Forum. There, he discussed bilateral cooperation with the Russian President Vladimir Putin and his counterpart Alexander Novak.
— Argaam Plus (@ArgaamPlus) June 10, 2019
In an interview with Russian agency Tass, the Saudi official assured that President Putin himself has recognized that cooperation with the OPEC should continue, as it is beneficial for global economy, for the energy industry, and to recover from the issues resulting from the 2015-2016 crisis. According to Al-Falih, Novak also agrees that the oil market will need continuous assessment of the demand, while producers continue to guide the sector to stability.
Agreement in spite of the doubts
The Saudi official believes Russia has doubts regarding the impact that the sanctions will have on Venezuelan and Iranian exports and if there will be a big debate as to the supply removed from the market. Another doubt, in this situation, is the best path to move forward.
The official assured that, after meetings with Putin and Novak, they all agreed to continue monitoring the market.
Also, he added he is confident that nearly all cartel members agree on the need to extend the OPEC+ cooperation deal.
— Middle East Affairs (@AffairsEast) June 10, 2019
Furthermore, he said that the Iraqi minister, for instance, has already expressed his support. The United Arab Emirates, Kuwait, and all large OPEC producers, as well as many non-members like Oman, Kazakhstan, and Azerbaijan also support the extension.
“So, I think the remaining country to jump on board now is Russia. I will wait for the Russian dynamics to work themselves out. There is a debate obviously within the country about the exact volume that Russia should be producing in the second half. And we will look at the global market and discuss it when we meet in three weeks.
Russia and the extension of the OPEC+ deal
The Saudi energy minister stressed that Russia is the largest non-OPEC producer, adding that big producers like Saudi Arabia and Russia must lead by example.
Al-Falih expects major producers like Russia, Saudi Arabia, Iraq, Kazakhstan, and the United Arab Emirates will show the remaining 24 nations their commitment and lead by example.
He sustained that Russia has done a great job so far. Therefore, he hopes that for the remainder of 2019, “once we formalize the extension,” Russia will continue to fully comply with the deal.
Also, he stated he has heard strong supporting statements from many Russian companies, including Lukoil. Hence, the benefits of participation are pretty clear for all.
— Argaam Plus (@ArgaamPlus) June 10, 2019
The road traveled
The decline in oil prices has been a challenge for the Organization of Petroleum Exporting Countries (OPEC). The cartel and other producers have had to deal with this issue for three years.
In late 2016, the OPEC and 11 independent producers agreed to lower the group’s production by 1.8 million bpd from the levels recorded in October 2016. The allies that joined the organization back then were Russia, Mexico, Azerbaijan, Kazakhstan, Malaysia, Oman, Sudan, South Sudan and Equatorial Guinea. The latter has been an OPEC member since 2017.
The pact, which seeks to stabilize hydrocarbon prices, has been extended several times.
In December 2018, the OPEC agreed to reduce oil production by 800,000 per day for six months, as of January 2019. Meanwhile, non-OPEC members pledged to cut production by 400,000 bpd. The cuts are made based on the levels recorded in October 2018.
This group, known as OPEC+, is set to meet in Vienna to discuss the extension of the agreement on June 25-26.
For more information, check Energía16