Russia and Saudi Arabia to extend OPEC oil output deal

Russia and Saudi Arabia are ready to extend the agreement on reducing oil production for another 9 months, until the end of March 2018.

Russian Energy Minister Alexander Novak and Minister of Energy, Industry and Mineral Resources of Saudi Arabia, Khalid Al-Falih,  in a joint statement said that the two countries are going to recommend at the meeting of the agreement participants on May 25 to extend it for another 9 months, until the end of March 2018, retaining the previous quota of 1.8 mln barrels per day.

The Ministers agreed to hold consultations with "the countries-participants in the agreements and other producers before May 24" for the purpose of reaching a full consensus on the nine-month extension of the declaration on cooperation, TASS reported.

Novak said more countries will participate in the meeting in Vienna on May 25 than in the current agreement to discuss the terms for extending  the agreement.

"More countries will be invited, the doors are open," the Minister said.

Brent for July settlement added as much as 1.7%, to $51.69 a barrel on the London-based ICE Futures Europe exchange. 

The OPEC and non-OPEC pact encompasses countries that pump 60 percent of the world’s oil, but excludes major producers such as the U.S., China, Canada, Norway and Brazil. The 11 non-OPEC countries taking part in the agreement are: Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, speaking to Vestnik Kavkaza, expressed confidence that Moscow and Riyadh will manage to extend the deal with OPEC of non-OPEC countries. "The question is, what impact the extension of the deal will have on the market. We should not expect the same stabilizing role, as we saw after previous agreements, when the oil price immediately rose by $10 per barrel," he warned.

In this regard, according to the economist, now it is necessary to negotiate not about maintaining the previous level of production, but about its further reduction. "Of course, the problem here is that it will not be possible to achieve a broad consensus on new cuts. But at the same time, the data on oil reserves are not declining on the market, while data on the increasing demand are not confirmed. There is no great demand growth, and in combination, it gives the absence of positive oil price movements," Ivan Kapitonov stressed.

"The only way here is further reducing oil production, hoping that oil production in the US will not increase. The US production is growing now, but even they have growth limits: the most easily extracted deposits have already been drilled, and in a couple of years, Americans will begin to reduce oil production," the associate professor of the Graduate School of Corporate Management of RANEPA concluded.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, in turn, noted that it will not be easy to agree on a new deal with OPEC. "I think Russia and Saudi Arabia have simply signaled to the rest of the countries that they are ready to extend the agreement. Everyone understands that only together they will be able to influence prices, but it requires a lot of preparation so that all countries that are not members of the cartel agree to extend the deal, and all the OPEC countries expressed a common opinion," he warned.

In connection with this, preparations are now underway to sign a new agreement, during which each country, which is ready to extend the deal with OPEC, declares it unofficially. "As soon as there is a certain critical mass of those who confirm their participation in the new summit, it will be possible to hold a meeting and sign the deal. "Russia and Saudi Arabia as the largest oil producers agreed, now it's up to other players. First of all, the problem here is Iran, which will declare that it has the right to increase its oil production. The second problem is Libya's increase in production, which did not participate in the last deal," Igor Yushkov said.

A new deal will not give a radical increase in oil prices. "Most likely, we will remain in the corridor of $50-55 per barrel, and if the agreement is not signed, then the price will decline sharply. The price of $50-55 per barrel is comfortable for Russia and many OPEC countries (except for Venezuela)," the leading analyst of the National Energy Security Fund concluded.