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Russia, Saudi Arabia: The OPEC Deal Works Fine

Oil

Russia and Saudi Arabia, the biggest participants in the international oil production cut deal, seem to be still confident that it will achieve the results everyone in OPEC and its partners is hoping for and bring the market back to balance by the end of the first quarter of 2018.

Remarks from Russia’s Alexander Novak and Saudi Arabia’s Khalid al-Falih at the Astana Expo 2017 in Kazakhstan this weekend suggest as much. Media quoted the Russian minister as saying that there was no need to review the agreement at this time, because it was too early to decide on anything. Also, he said that although supply is still in excess of demand, it should fall to the five-year average over the next few quarters – probably by the end of March 2018, when the extended agreement expires.

Al-Falih, for his part, told media at the Astana Expo that the decline in global inventories that has already began will speed up in the next three to four months. The statement comes despite an actual increase in global supplies: last week, the Energy Information Administration reported a surprise build of 3.3 million barrels in U.S. stockpiles, which pushed already depressed international prices further down.

The number of drilling rigs in the U.S. is also on the rise, for the 21st consecutive week as of June 9. For that latest week, shale drillers added 11 rigs. Novak told CNBC that the partners in the cut deal foresaw this production increase, adding that “Today we have to monitor the situation, and analyze the current developments. In my opinion, the deal is highly effective, and as for shale production recovery, we have to monitor it.”

Al-Falih’s remarks on the topic were in the same vein. He said “Weekly data goes up and down. Sentiments in the financial markets of course swing like a pendulum. But that doesn't change the fundamentals. What we can influence as oil producers is the fundamentals, the level of supply which will result in drawing down the inventories.”

By Irina Slav for Oilprice.com

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