OPEC, Russia set for oil cut extension but wary of overheating market

OPEC and Russia look set to prolong oil supply cuts until the end of 2018 this week while signaling that they may review the deal when they meet again in June if the market overheats.

With oil prices rallying above $60 per barrel, Russia has questioned the wisdom of extending existing cuts of 1.8 million barrels per day until the end of next year as such a move could prompt a spike in US production.

Six ministers from OPEC and non-OPEC oil producers including Saudi Arabia and Russia will gather in Vienna on Wednesday - one day ahead of a full OPEC meeting - to review recommendations by their delegates.

On Tuesday, a joint OPEC/non-OPEC committee recommended extending cuts until the end of 2018 with an option of reviewing the arrangement at the next OPEC meeting in June, three sources from the Organization of the Petroleum Exporting Countries said.

“OPEC’s nine-month option is really a six-month (or three-month) option as it will be re-evaluated at the next meeting,” said Jamie Webster, director at the Boston Consulting Group’s Centre for Energy Impact. The existing cuts expire in March.

Brent above $63

Benchmark Brent and US crude prices declined on Wednesday for a third consecutive day although Brent remained above $63.

UAE Energy Minister Suhail bin Mohammed al-Mazroui said on Tuesday that cutting output through all of 2018 was still the main, but not only, scenario.

“There is a meeting today in the afternoon. And depending on all of those parameters, we will come up with what is the best for the market and for the organization,” he said on Wednesday.

The production cuts have been in place since the start of 2017 and helped halve an excess of global oil stocks although those remain at 140 million barrels above the five-year average, according to OPEC.

Russia has signaled it wants to understand better how producers will exit from the cuts as it needs to provide guidance to its private and state energy companies.