OPEC and non-member oil producers are gearing up to extend output cuts on Thursday, possibly by as long as 12 months, to help clear a global stocks overhang and prop up crude prices. The Organization of the Petroleum Exporting Countries is to discuss in Vienna whether to prolong an accord reached in December in which it and 11 non-members agreed to cut oil output by about 1.8 million barrels per day in the first half of 2017.
Most OPEC ministers, delegates and the market see a nine-month extension – instead of the initially suggested six months – as the base-case scenario but some countries including Russia have suggested an unusually long duration of 12 months. “I think nine months is most likely,” one OPEC delegate said. Four other delegates agreed it was the most probable outcome.
OPEC’s de facto leader, Saudi Arabia, and top non-OPEC producer Russia have said cuts need to be extended to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel. OPEC sources have said the Thursday meeting will highlight a need for long-term cooperation with non-OPEC producers.
The group could also send a message to the market that it will seek to curtail its oil exports, which have not declined as steeply as its production. However, a decision on deeper output cuts is unlikely on Thursday, sources have said. The OPEC meeting is expected to start after 0820 GMT, according to a preliminary schedule, followed by a joint gathering with non-OPEC after 1320 GMT.
By 0804 GMT, Brent crude was trading up almost 1 percent, near $54.50 a barrel. OPEC’s cuts have helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.
Oil’s earlier price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria. “Russia has an upcoming election and Saudis have the Aramco share listing next year so they will indeed do whatever it takes to support oil prices,” said Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts.
The price rise this year has spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing with global stocks still near record highs. OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion.
Algerian Energy Minister Noureddine Boutarfa told Reuters on Wednesday he believed that inventories should normalise by the end of 2017.