OPEC+, a group of 24 oil-producing countries, look set to extend oil supply cuts this week at least until the end of 2019 as Iran joined top producers Saudi Arabia, Iraq and Russia in endorsing a policy aimed at propping up the price of crude amid a weakening global economy.
The output-cutting pact expired on June 30. OPEC meets in Vienna today followed by talks with OPEC+ on July 2.
Iranian Oil Minister Bijan Zanganeh said he would support prolonging output cuts by six to nine months, but believes that an organisation, where Russia and Saudi Arabai strive to challenge the interests of other members, is doomed to dissolution.
Saudi Energy Minister Khalid al-Falih said the deal would most likely be extended by nine months and no deeper reductions were needed. "It’s a rollover and it’s happening," Reuters cited Falih as saying.
The United States is not a member of OPEC, nor is it participating in the supply pact. Washington has demanded Riyadh pump more oil to compensate for lower exports from Iran after slapping fresh sanctions on Tehran over its nuclear program.
OPEC and its allies led by Russia have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the United States, which has become the world's top producer this year ahead of Russia and Saudi Arabia.
Fears about weaker global demand as a result of a U.S.-China trade spat have added to the challenges faced by the 14-nation Organization of the Petroleum Exporting Countries in recent months.
Russian President Vladimir Putin said earlier he had agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2% of global demand, by six to nine months - until December 2019 or March 2020.
Kazakh Energy Minister Kanat Bozumbayev said he supports prolonging output cuts by six months, adding that the republic's representatives haven't discuss prolonging output cuts by nine months with OPEC and non-OPEC states.
Iraqi Oil Minister Thamer Ghadhban also said that he expects a global deal cutting oil production to be extended by six to nine months.
"The main oil producers are heading towards a decision to extend the oil production agreement by six to nine months," he said in a statement.
Head of the 'Caspian Barrel' Center for Oil Research Ilham Shaban told Vestnik Kavkaza that the global oil market has only positive expectations from this summit. "The main players of OPEC and OPEC+ positively estimate the proposal to extend the deal at least until the end of this year. Oil prices are in the corridor of $65-70 per barrel, which suggests that the market expects the new summit and its decisions stabilize the state of affairs," he said in the first place.
"Only Iran's behavior can be unexpected, whose representative has already said that he does not see any prospects for further participation in the OPEC + format. Tehran's line is clear. Against the background of constant sanctions pressure from the West, Iran has to negotiate with the other parties to the deal to soften the sanctions against its economy," Ilham Shaban said.
The expert pointed out that the deal has allowed to keep oil prices in the same price corridor for several years. "Stability is the most important thing in the oil market. In 2015, the average price of Brent oil was $67 per barrel by the end of May, now it is about $66.7 per barrel. Over the past four years there have been noticeable price drops, but still the average price has always remained within the same limits. And ensuring the stability of the market in the future will be the main achievement of the deal," the head of the 'Caspian Barrel' Center for Oil Research concluded.
A senior analyst of 'Uralsib', Alexei Kokin, does not expect any surprises from today's negotiations. "OPEC’s biggest players, Saudi Arabia, Kuwait, Iraq and the United Arab Emirates, have already agreed to extend the deal. The main participant of OPEC + is Russia, and we are also ready to extend the deal by 9 months. I think that Russia, Saudi Arabia and several other countries are a united front in this issue. Of course, there is discontent on the part of Iran, but it is unlikely that Iran will protest seriously because it's interested in high oil prices," he said.
At the same time, the market has already reacted on positive expectations from the OPEC + summit in Vienna. "The extension of the deal for 6 months was laid by the market even before this weekend. Extending the deal until the end of March 2020 was additional information. But it seems to me that this has already been played as well, just look at the current price of Brent above $66,6 per barrel, which fully reflects the expectations of the market," Alexey Kokin noted.