Kuwait says OPEC, non-OPEC countries could deepen oil cuts

OPEC and non-member oil producers could deepen output cuts or extend them for a year at a meeting in Vienna this week, Kuwait said on Wednesday, as they seek to clear a global stocks overhang and prop up the price of crude.

The top oil producer in OPEC, Saudi Arabia, favours extending the output curbs by nine months rather than the initially planned six months, to speed up market rebalancing and prevent crude prices from sliding back below $50 per barrel.

OPEC members Iraq and Algeria as well as top non-OPEC producer Russia also said they support a nine-month extension.

As ministers gathered in Vienna for informal consultations, Saudi OPEC ally Kuwait said discussions included the possibility of deepening the cuts or prolonging them by 12 months.

“All options are on the table,” Kuwaiti oil minister Essam al-Marzouq told reporters.

The Organization of the Petroleum Exporting Countries meets formally in Vienna on Thursday to consider whether to prolong the deal reached in December in which OPEC and 11 non-members agreed to cut output by about 1.8 million barrels per day in the first half of 2017.

On Wednesday, several OPEC and non-OPEC ministers including those from Saudi Arabia and Russia are meeting in the Austrian capital to discuss the progress of cuts and their impact on global oil supply.

Several delegates and ministers including Algeria’s said they did not believe cuts could be extended by a full year. Ecuador, Algeria and Venezuela said deeper cuts were not necessary.

OPEC’s second-largest producer, Iraq, had insisted on limiting the extension to six months but said this week it would not object to a nine-month prolongation after talks with Saudi Arabia.

Iranian Oil Minister Bijan Zanganeh, who clashed with Saudi Arabia in many previous OPEC meetings, has so far kept a low profile, saying extensions of six or nine months were possible.

Under the existing deal, Iran received an exemption slightly to raise output, which has been curtailed by years of Western sanctions. Iran’s production has been stagnant in recent months, suggesting limited upside potential at least in the short term.

DEEPER CUTS

OPEC’s cuts have helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, which heavily rely on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.

The oil price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.

While the market sees an extension by nine months as the base-case scenario, surprises on Thursday could include a deepening of the cuts.

A substantial additional cut was unlikely, one OPEC delegate said, “unless Saudi Arabia initiates it with the biggest contribution and is supported by other Gulf members”.

By 1230 GMT on Wednesday, Brent crude was down around 0.2 per cent at $54.03 a barrel.

But the price rise has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market’s rebalancing with global stocks still near record highs.

“This (stocks decline) is a bit tricky as production cuts cause higher prices which will incentivise more production for the US shale oil and reduce the impact of the production cuts. So it’s a bit cyclical,” said Sushant Gupta, research director for consultancy Wood Mackenzie.

OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion.

Algeria’s energy minister said he believed stocks remained stubbornly large in the first half of 2017 because of high exports from the Middle East to the United States.

“Thankfully, things are improving and we started seeing a draw in inventories in the United States,” Noureddine Boutarfa told Reuters.

One industry source close to OPEC said the group could also send a message about tighter exports but it was unclear how that could be presented on Thursday.

Boutarfa said extending output cuts by nine months would help to ease a global glut by the end of 2017, when inventories should decline to their five-year average: “Before the end of the year, prices may go above $55 a barrel”.