OPEC and its allies were poised to continue their production cuts for another nine months after Iraq backed an extension, removing one of the last remaining obstacles to an agreement.
The proposal is the latest attempt by oil producers from Saudi Arabia to Russia to prop up prices and revive their economies. The talks are closely followed elsewhere as they can affect everything from the share price of Exxon Mobil Corp. to the Brazilian real and Nigerian sovereign bonds.
Representatives of 24 nations need to ratify the extension in a meeting in Vienna on Thursday. Kuwait’s Oil Minister said some nations still aren’t on board, but the most influential members were publicly backing supply curbs lasting until March 2018.
“The trend now regarding the output deal is to extend for nine months,” Saudi Minster of Energy and Industry Khalid Al-Falih said on Monday. “All I talked to from inside OPEC are supporting the nine months of cuts.”
The Organization of Petroleum Exporting Countries and 11 non-members agreed last year to cut output by as much as 1.8 million barrels a day. The supply reductions were initially intended to last six months from January, but the slower-than-expected decline in surplus fuel inventories prompted the group to consider an extension. Data from the U.S. Energy Information Administration indicate that maintaining the curbs into the first quarter of 2018 would bring stockpiles back in line with the five-year average — OPEC’s stated goal.
Iraq, OPEC’s second-largest producer that only reluctantly agreed last year to cut output, had previously favored prolonging the historic deal by just six months. Al-Falih secured the nation’s backing for a longer extension after talks in Baghdad with his Iraqi counterpart Jabbar Al-Luaibi. Non-OPEC nations Oman and Mexico also confirmed their support for a nine-month extension.
There’s already a consensus within the producers’ group that a six-month extension is necessary, Kuwait’s Oil Minister Issam Almarzooq told reporters Tuesday before leaving his country for Vienna. “Not everybody” is on board yet for nine months and deeper cuts are not considered to be necessary, he said.
Iran, OPEC’s third-largest producer and a political rival of Saudi Arabia, hasn’t yet publicly backed a nine-month extension, but Oil Minister Bijan Namdar Zanganeh said on May 6 that he will go along with whatever decision the rest of the group makes.
The cuts will prove to be more effective in eliminating the supply glut in the second half, said United Arab Emirates Energy Minister Suhail Al Mazrouei.
“We need to give the market some more time,” and the U.A.E. is open to prolonging the agreement for six or nine months, he said on sidelines of conference in Abu Dhabi on Tuesday. The deal “has been working and I know it will work even better for the second half.”
If OPEC maintains its April crude production of 31.8 million barrels a day throughout the second quarter, stockpiles will shrink at a rate of about 700,000 barrels a day, according to the International Energy Agency. That depletion will accelerate to about 1.5 million barrels a day in the second half if the cuts are maintained, IEA data show.
Even so, “stocks at the end of 2017 might not have fallen to the five-year average, suggesting that much work remains to be done,” the IEA said in its monthly oil market report on May 16.
OPEC impressed oil traders this year by making almost all the supply cuts it promised. Keeping output down will get harder because the tailwinds in the first half of the year — from a seasonal lull in demand to temporary oil-field maintenance — will be gone.
Iraq has the worst record of compliance with its pledged cuts, pumping about 80,000 more barrels of oil a day than permitted during the first quarter. If that deal gets extended to 2018, the nation will have even less incentive to comply because capacity at key southern fields is expanding and three years of fighting Islamic State has left it drowning in debt.
Iraq’s oil minister promised to meet the nation’s full commitment in May, Saudi Minister Al-Falih said in an interview on Arabiya television on Tuesday. Additional countries may also join the supply cuts, but the overall agreement won’t be substantially changed, he said.
“There is an initial willingness for one or two countries from the small producers to join,” Al-Falih said. “Slight changes might happen but the deal in its general shape will be almost the same we agreed upon last December.”