Amsterdam - Saudi
Arabia and Russia signaled they could extend
production cuts into 2018, doubling down on an effort to eliminate a supply
surplus just as its impact on prices wanes.
In separate statements just hours
apart on Monday, the world’s largest crude producers said publicly for the
first time they would consider prolonging their output reductions for longer
than the six-month extension widely expected to be agreed at the OPEC meeting
on May 25.
"We are discussing a number of
scenarios and believe extension for a longer period will help speed up market
rebalancing” the Russian Energy Minister Alexander Novak said in a statement.
Speaking in Kuala Lumpur earlier Monday, his Saudi
counterpart Khalid Al-Falih said he was “rather confident the agreement will be
extended into the second half of the year and possibly beyond” after talks with
other nations participating in the accord.
Read also: What's behind the surprise oil cut?
Oil advanced after Novak’s
comments, with Brent crude gaining 0.6 percent to $49.38 a barrel at 9:49 a.m.
in London.Russia and Saudi
Arabia, the largest of the 24 nations that
agreed to cut production, are reaffirming their commitment to the deal amid
growing doubts about its effectiveness.
Surging US production has raised concern
the Organization of Petroleum Exporting Countries and partners are failing to
reduce an oversupply. Oil has surrendered most of its gains since their deal
late last year.
Determined Coalition
“The producer coalition is
determined to do whatever it takes to achieve our target of bringing stock
levels back to the five-year average,” Al-Falih said. While US shale output
growth and the shutdown of refineries for maintenance have slowed the impact of
cuts by OPEC and its partners, the Saudi minister said he’s confident the
global oil market will soon rebalance and return to a “healthy state.”
As OPEC and its allies curbed
supply, production in the US,
which is not part of the agreement, has risen to the highest level since August
2015 as drillers pump more from shale fields. But American crude inventories
are showing some signs of shrinking, falling for the past four weeks from
record levels at the end of March.
“Given the extent of the over-hang
I think they always knew the market was not going to rebalance in six months
which is why our base case was always for a deal lasting at least one year, and
if not longer,” said Virendra Chauhan, an analyst at industry consultant Energy
Aspects. “Market expectations were lofty, and so OPEC will need to surprise the
market with either a deeper cut, or possibly a longer than six-month extension
to get prices to move higher.”