Published: Mon, May 22, 2017
Finance | By Laverne Griffith

Opec heads towards supply cut extension as Saudi signals most on board

All producers agree to extend crude output cuts by nine months to help trim a supply glut, according to Saudi Arabian Minister of Energy and Natural Resources Khalid al-Falih.

OPEC officials gathering in Vienna on Friday to prepare for next week's ministerial meeting kept their focus on rising US shale oil production, which has been diluting the price impact of their production cuts.

"We believe that continuation with the same level of cuts, plus eventually adding one or two small producers...will be more than adequate to bring the five-year balance to where they need to be by the end of the first quarter 2018", he said.

The Organization of the Petroleum Exporting Countries (OPEC) will be meeting on May 25 at the Vienna Convention to discuss whether the cuts in oil production should be extended in the wake of surging United States output.

Last week Russian Federation and Saudi Arabia, the world's two biggest oil producers, jointly called for oil producers to extend their production cuts to March 31, 2018.

The producers, who together account for about half of the world's oil supply, have seen the initial price boost from their historic agreement fade as shale companies deployed more rigs and raised the country's output to the highest since 2015.

On Friday, Brent crude LCOc1 closed up $1.10, or 2.1 percent, at $53.61, the highest settlement for the worldwide benchmark since April 18.

"If OPEC cuts production even more, it will likely lose additional market share to US shale and prices may not move up much more", the bank said.

The cartel will extend the cuts and pretend everything is fine, BofAML said in its latest Global Energy Weekly.

Even Iran is likely to go along with such the extension plan if there is a consensus, sources familiar with Iranian thinking have told Reuters.

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A second source said a deeper supply cut was an option depending on estimated growth in supply from non-OPEC and the ramping up of U.S. shale oil and the consequent rising inventories. The report pegged OPEC's member compliance with the cuts at 96 percent.

Preliminary April data indicated stocks would rise further, the IEA said.

Opinions are divided whether the extension to curb oil production will be sufficient. Crude stocks stood at a record 1.235 billion barrels.

"Our expectation going forward is continuing a balanced and reasonable cut in volumes will optimize for all producers all their revenue, while at the same time keeping prices in a reasonable range for consumers and for the overall market", he said.

OPEC and other producers who agreed to the cuts previous year are not targeting any specific oil price, al-Falih said.

The panel, the Economic Commission Board (ECB), does not set policy and its meeting precedes the gathering of OPEC and non-OPEC oil ministers on May 25 to decide whether to extend beyond June 30 their deal to reduce output.

The size of the extra supply cut being mulled by the European Central Bank was not immediately available.

That compares with a supply reduction of 1.2 MMbpd from October levels implemented by OPEC, plus a cut of less than 400,000 bpd from non-members.

Officials at the Vienna meeting were relieved that two outside energy consultants had estimates for growth in average US crude output of 450,000 to 500,000 barrels a day this year, lower than the 562,000 barrel-a-day forecast from OPEC's own analysts, said two delegates.

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