The Organisation of Petroleum Exporting Countries (OPEC) is close to reaching an agreement to extend the production cut deal beyond its current expiry date at the end of he month, Saudi Arabia Energy Minister, Khalid al-Falih, said at the weekend.
โOn the OPEC side, a roll over is almost in the bag. The question is to calibrate with non-OPEC,โ al-Falih said at the St. Petersburg International Economic Forum in Russia.
โIโm hoping it will be an easy decision and that weโll roll over, but if itโs not, we will be flexible in terms of our position in the kingdom,โ al-Falih added.
After a meeting with Russiaโs Energy Minister Alexander Novak, Saudi Arabiaโs al-Falih said he was sure that the larger OPEC+ group would roll over production cuts through the end of this year.
โThere wonโt be a need to deepen the cuts, while the situation with oil supply in Iran, Venezuela, and other countries will show if OPEC and allies need to scale back the cuts a little bit,โ al-Falih said.
An equity analyst at Jefferies, Jason Gammel stated in a research note that it is apparent that between inventory builds and price action, OPEC+ will need to extend production cuts into the second half of the year. The Jefferies representative added, however, that Russian โintentsโ are โmurky at this pointโ, something he said was perhaps another contributor to the oil price decline.
In the research note, Gammel highlighted that Brent prices are down 18.7 per cent over the 29 trading days since an April 24 peak. An action, which he says matches the severity of the fourth quarter 2018 decline to that point.
โThere was a lot of pain yet to come then, but the forward curve had already shifted to contango at that point. Brent currently remains in backwardation, implying a tight market despite the massive inventory builds in the United States. The supply-side concerns have materialised in May: Iranian exports were down to about 400,000 barrels per day (bpd); Venezuelan exports fell to 875,000 bpd; and Russian exports fell by 400,000 bpd month on month due to contamination issues on the Druzbha pipeline,โ he added.
OPEC is currently scheduled to meet in Vienna on June 25 and a combined OPEC and non-OPEC meeting is planned in the city for June 26, according to the organisationโs website.
Last month, OPEC revealed that the joint ministerial monitoring committee had reaffirmed its commitment to achieving a balanced market and working towards oil market stability.
Earlier this week, al-Falih sought to assure the oil market that the Saudis and the larger OPEC+ group would do whatever it takes to bring supply and demand to balance.
Saudi Arabia and Russia, the respective leaders of the OPEC and non-OPEC groups part of the production cut deal, have been allies in oil market management for more than two years now, although the Saudis need oil prices at $85 to balance their budget, while Russia claims that itโs fine with the current price of oil at $60-65.
OPEC and its Russia-led non-OPEC allies are withholding a total of 1.2 million bpd of oil supply from the market until the end of June and are set to meet in coming weeks to discuss how to proceed with their oil supply management policies in place since the start of 2017.
The oil price slide of the past two weeks leaves OPEC and its partners little choice, but to roll over the cuts, analysts say.
