Leading Persian Gulf oil producers Saudi Arabia and Kuwait gave the clearest signal yet that OPEC plans to extend a deal with non-OPEC producers to curb oil supplies into the second half of the year.
Consensus is growing among oil producers that their supply restraint agreement should be extended after its initial six-month term, but there is no agreement yet, Saudi Arabian Minister of Energy, Industry and Mineral Resources Khalid al-Falih said yesterday.
“There is consensus building, but it’s not done yet,” he told reporters on the sidelines of a conference in the United Arab Emirates.
Asked about non-OPEC producer Russia, Falih said: “We are talking to all countries. We have not reached an agreement for sure, but the consensus is building.”
Kuwaiti Minister of Oil Essam al-Marzooq said at the same event that he expected to see an extension of the agreement.
“We have a noticeable increase in compliance from non-OPEC, which shows the importance of extending the agreement,” al-Marzooq said.
“Russia is on board preliminarily... Compliance from Russia is very good. Everyone will continue on the same level,” he said.
If OPEC and non-OPEC producers decide to extend their six-month agreement, the cuts might become less deep as oil demand is expected to be stronger for seasonal reasons in the second half of this year, al-Marzooq said.
OPEC would extend the deal if there was consensus among non-OPEC producers, he said, adding that producers were always looking for more non-OPEC members to join the agreement.
One African country has expressed interest in joining, he said, without elaborating.
OPEC is keen that non-OPEC play its part in reducing world inventories to support a price rise that has stalled near US$55 per barrel. Crude is up from last year’s lows of less than US$30.
OPEC meets on May 25 to discuss extending supply curbs with non-OPEC countries that total 1.8 million barrels daily, two-thirds of that from OPEC.
Al-Falih said there was “an initial agreement” that the oil cuts might need extending to drain high global inventories, adding that talks were ongoing.
“Our target is the level of inventories. This is the main indicator for the success of the initiative,” al-Falih said.
While inventories held at sea and in producer countries have dropped, they remain stubbornly high in consumer regions, particularly in Asia and the US.
The International Energy Agency last week said that inventories in industrialized countries were still 10 percent above the five-year average, a key gauge for OPEC.
Omani Minister of Oil and Gas Mohammed bin Hamad Al Rumhi said a “quite high” number of producers favored extending the supply restraint agreement.
“The number of countries that are supporting the extension I think would be quite high, percentage-wise,” Al Rumhi told reporters.
However, Iraq might seek to be exempt and ask to boost its own output, said Ammar al-Hakim, the leader of the nation’s Shiite ruling coalition, the Islamic Supreme Council.
Speaking in Cairo, al-Hakim said that Baghdad could ask to be exempted from taking part in the supply curbs as the nation needed its oil income to fight the Islamic State.
“Given these sensitive circumstances, it is the right of Iraq to hope for an exemption by the other OPEC member states and have an opportunity to increase its production,” al-Hakim said in an interview late on Wednesday. “But we are with the principle of reducing the overall OPEC supply to lift prices.”