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Are Deeper Cuts OPEC’s Only Option?

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OPEC’s No.2 and 3 Back Deal Extension

Offshore

OPEC’s no.3 producer, Iran, will likely support the Saudi-Russian proposal to extend the oil production cuts into March 2018 if all other producers are also on board, sources familiar with Iran’s thinking told Reuters on Tuesday, describing the nine-month extension proposal as “a positive idea”.

OPEC’s no.2 producer, Iraq, weighed in, giving its support to the extension as well, according to comments by Prime Miniser Haider al-Abadi.

Saudi Oil Minister Khalid al-Falih and Russian Energy Minister Alexander Novak said on Monday that they agreed to extend the oil production cut deal until March 2018.

“Iraq is with the continuation of a reduction of oil production of OPEC nations and we will push in that direction," Abadi said in a news conference, but stopped short of spelling out what specific terms would be acceptable.

Iraq’s support may come as quite a surprise to some, after Iraq’s spotty compliance with the existing deal, not to mention proclamations of its intentions to increase production to 5 million bpd yet in 2017.

OPEC is meeting on May 25 in Vienna to decide the form and period of the extension. While a rollover was widely expected, the Saudi-Russian idea is for a longer period than the six-month optional extension agreed upon in the initial deal late last year.

Iran’s support, if it is officially given, would not be so surprising, as it was the only OPEC member allowed to slightly increase its output in the initial six-month deal, while all others – except for the exempt Libya and Nigeria – had to cut. Related: Goldman’s Two Conditions For A Successful OPEC Deal

According to one of Reuters’ sources familiar with Iran’s way of thinking, oil prices have to be supported in order to ensure that there would be enough investment in the oil industry and no shortage in supply in the future. Another source said that oil prices were likely to recover modestly as summer is coming, with the U.S. gasoline demand up for the driving season.

Still, Iran—which has not yet voiced official position referring to the Saudi-Russian extension proposal—cannot be entirely predictable ahead of next week’s meeting, all the more so that it is holding a presidential election this coming Friday, in which incumbent moderate President Hassan Rouhani will seek a second term in office.

Last month, Iran’s Oil Minister Bijan Zanganeh said that most oil producers supported an extension, and so would Iran, if others comply.

Kuwait said on Tuesday that it was also supporting the 9-month cuts extension.

By Tsvetana Paraskova for Oilprice.com

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