Vienna — OPEC and its allies appear set to continue their oil supply cuts at the same levels through the first quarter of 2020, with the de facto leaders of the producer coalition — Saudi energy minister Khalid al-Falih and Russian counterpart Alexander Novak — endorsing a longer extension than previously signalled.
The OPEC/non-OPEC 1.2 million b/d cut agreement expires Sunday, and tepid oil demand growth forecasts and surging US production have many ministers backing a rollover to keep prices from slumping further. The coalition will meet in Vienna on Monday and Tuesday to decide how to proceed.
"I think it's most likely [an extension for] nine months, but we have to talk to other ministers," Falih said on arrival in the Austrian capital early Sunday. "My preference is for nine months."
He added that the cut volumes should remain the same and that he saw no need for deeper cuts, as suggested by some countries, such as Algeria and Iraq. Even though demand growth was softening, "it's still healthy, more than 1 million b/d" and the market will balance in six to nine months, Falih said.
Much of the talk surrounding the agreement had centered around an extension through the end of the year. OPEC Secretary General Mohammed Barkindo said an extension into 2020 would provide more clarity for the oil market.
"Most of the forecasts and analysis we are seeing now are gradually shifting to 2020,” he said Sunday. "At the moment, the numbers are very preliminary, so I think having a decision that will turn into 2020 with a meeting in December, when those preliminary numbers will be more certain, is probably something worth consideration at the conference tomorrow, but we'll see.”
OPEC, Russia and nine other non-OPEC allies have cooperated on production cuts since 2017, and the current round of quotas was implemented for the first half of 2019.
Coalition officials have emphasized that whatever decision is taken, it will include flexibility to respond to changes in market conditions.
OPEC has left itself some room to increase production and still comply with the terms of the agreement, with Saudi Arabia overcomplying with its cut commitment and involuntary declines by Iran and Venezuela due to US sanctions.
The coalition's May compliance stood at 163%, a delegate told S&P Global Platts.
Tightened US sanctions on Iran and Venezuela had many market watchers expecting a potential loosening of the quotas for the second half of 2019. But disappointing oil demand estimates by OPEC's analysis arm and the International Energy Agency and a surge of US production — which topped 12 million b/d for the first time in April, according to the US Energy Information Administration — appear to have strengthened the coalition's resolve.
Russian President Vladimir Putin on Saturday first floated the possibility of a nine-month deal, after meeting Saudi Crown Prince Mohammed bin Salman at the G20 summit in Japan and declaring that the two countries were aligned on extending the cuts.
Putin had up until that point been noncommittal about Russia's continued participation in the cuts, suggesting earlier this month that he was comfortable with current oil prices.
ICE Brent futures closed Friday at $64.74/b, down 13% from their 2019 peak of $74.57/b in late April.
Any OPEC agreement would require a unanimous vote. OPEC will meet Monday, and Russia and the nine other non-OPEC partners in the cut accord will have talks on Tuesday.
Novak, who is scheduled to arrive in Vienna Sunday evening, said Saturday that continuing the cuts through March would take the agreement through winter, when Russia finds it harder to raise output due to harsh weather conditions.
"In the winter period it would be difficult to exit the deal, when demand is falling and in the summer period, demand rises. Therefore, it is most likely, most beneficial, to extend the deal for nine months," Novak said, according to the Prime news agency.
Cleanup of contaminated Russian crude in the Druzhba pipeline could also run into autumn, impacting production.
--Edited by Claudia Carpenter, email@example.com