Dubai — Qatari oil minister Mohammad al-Sada joined a growing number of major oil producers calling Sunday for an extension to the OPEC and non-OPEC output cut deal to the end of March 2018.
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After nearly three years of buildup in oil stocks, the process of rebalancing was "finally gaining momentum," Sada said in a statement Sunday.
"We are optimistic that the extension of the agreement to the second half of this year will improve market stability, due to the higher expected demand in Q3 and Q4. This is further supported by the fact that the world economic situation is progressively improving," Sada said in a statement Sunday.
"We also see merits of extending the agreement further to the first quarter of 2018, when demand is seasonally lower," the minister added.
OPEC and 11 non-OPEC producers agreed last December to cut production by 1.8 million b/d. According to Sada, the breakthrough in reducing stocks was due to the "excellent compliance to the agreed production cuts by OPEC members and participating non-OPEC countries."
So far, Algeria, Iran, Iraq, Kuwait, Saudi Arabia, the UAE and Venezuela have all said they back some form of extension to the output cuts, although details will have to be hammered out at the next OPEC meeting in Vienna May 25.
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Although Sada's statement falls into line with those of other major oil producers, the issue of compliance is likely to be one of the key points of discussion, and divisions within the coalition remain.
Iraq has been among the least compliant OPEC members in meeting its production quota under the deal, according to estimates provided by OPEC's six secondary sources used to monitor output.
The UAE has similarly been slow to comply with its quota, despite its pledges that significant production cuts would be evident in April and May due to field maintenance works. This has left kingpin Saudi Arabia to bear the biggest burden of the cuts over the last four months.
And outside of OPEC, Russia only recently attained its full 300,000 b/d cut commitment.
"Compliance with output cuts has been improving," Saudi oil minister Khalid al-Falih told journalists at a conference in Riyadh.
Saudi Arabia and Russia, the world's top two crude producers, agreed last week that the extension will need to be formally adopted by OPEC in Vienna, and then by non-OPEC producers as well.
Given expectations for a seasonal pick-up in demand during the second half of this year, the reduction in the global overhang of stocks should start to become more visible, supporting crude oil prices, the head of commodity strategy at Saxo Bank Ole Hansen said Sunday.
But this will be challenged by a further rise in production from the US and potentially also Libya and Nigeria.
"During the past six months since OPEC made the agreement to cut, we have seen US production increase by almost 1 million barrels compared to expectations back in November," Hansen said in a research note.
This means OPEC's ambitions are likely to have been reduced from previous meetings with the main objective at this stage being to buy more time and support the price until the expected recovery kicks off later in the year.
--Adal Mirza, email@example.com
--Edited by Irene Tang, firstname.lastname@example.org