Members of the Organization of Petroleum Exporting Countries (OPEC) favor extending production cuts beyond June to continue efforts to rebalance global oil markets, according to a new report by Reuters.
The initiative would require that the 11 NOPEC nations that were a part of the original deal commit to extended cuts as well, anonymous sources from within the bloc said.
“The ministers will meet in May to decide, but everyone has to be on board,” one OPEC source from a major producer said regarding the deal.
Last November, OPEC agreed to cut output by 1.2 million barrels, but most of the heavy-lifting has been done by Saudi Arabia – the group’s de facto leader. The deal was the first of its kind in eight years and included almost a dozen outsider nations that agreed to cut an additional 600,000 barrels of production.
Oil prices have stayed in the $55-$60 range since the deal was implemented in January, with the increase in returns enticing United States’ producers to raise cheap shale oil output. At the same time, high inventories internationally have slowed new purchases, putting a downward pressure on prices.
“An extension is needed to balance the market,” one OPEC delegate told Reuters. “Any extension of the cut agreement should be with non-OPEC.”
In order for crude and refined oil inventories to fall to the previous five-year average, 278 million barrels of oil needs to be consumed from storage.
The bloc meets in Vienna on May 25th, but negotiations to determine whether the deal will be extended (and if so, to what extent) are already underway.
“OPEC heavyweights such as Saudi Arabia are not happy with the return of shale oil in full force and have to make a hard choice between losing part of their market share or steady income,” another source from a non-Gulf OPEC producer said. “They will more likely opt for income and will push to get help from non-OPEC.”
By Zainab Calcuttawala for Oilprice.com