OPEC mulls over full-year extension with no clear answer from Russia

The head of Russia’s top oil producer Rosneft, Igor Sechin. (Reuters)

Vienna: All OPEC states are supporting a full-year extension when they meet on Nov. 30, yet Russia is still not giving any confirmation on the duration of the extension, sources told Arab News.
Saudi Arabia and Russia are leading the global efforts to extend the current agreement to curtail production of 24 countries by 1.8 million barrels a day (bpd) to rebalance the oil market and to bring global inventories back to their five-year average. The agreement, which will expire in March, has helped in raising oil prices in the past few days to levels not seen since 2015.
“All members of OPEC want to extend the deal until the end of 2018 and many non-OPEC members such as Oman and Bahrain want that too, but we are still waiting to hear from Russian officials as they are giving mixed signals,” a source familiar with the talks told the Arab News.
Oil markets will rebalance some time in the third quarter of 2018, according to OPEC’s own estimates, a source told Arab News. The calculations were confirmed by OPEC’s Economic Commission Board (ECB), raising the possibilities for extending production cuts well into next year.
The conclusion from OPEC’s national representatives attending the ECB meeting and the group’s secretariat is enough to convince OPEC but it might not be enough to convince the Russians.
“Russians are complaining about high oil prices and they don’t want to see prices shooting up above $60,” one of the sources said. “They see the market rebalancing a few months earlier than OPEC’s forecast, so they are happy with a shorter period of extension.”
The head of Russia’s top oil producer Rosneft, Igor Sechin, a close ally of President Vladimir Putin and a critic of the deal with OPEC, has said the recent price rally lends too much support to the rival US shale industry, which does not participate in cuts.
OPEC’s leader Saudi Arabia has signaled that it wanted oil to trade at about $60 per barrel as the Kingdom is preparing to list its national oil champion Aramco and is still fighting a large fiscal deficit.
Russia also needs high oil prices before the presidential election in March 2018. But officials in Moscow have also expressed worries about an overly strong rouble, which would undermine the competitiveness of its economy.
OPEC’s members, however, are looking for full-year commitment as it is the only way to ensure markets that 2018 will be a stable year. OPEC offered Russians an option to adjust supply next year based on any new development and that will be included in the new terms of the deal, a source said.
The countries have no option but to agree to a full-year extension when they meet as any other option will result in a fall in oil prices, one of the sources said.