Russia and the other non-OPEC members of the production cut pact first sealed in 2016 have officially ratified an extension of the latest round of cuts agreed last December, Energy Minister Alexander Novak said at the OPEC meeting in Vienna today, after crafting the details of the deal a day earlier.
CNBC reported that OPEC had agreed to extend the cuts—of a total 1.2 million bpd—until the end of March 2020 as prices stubbornly refuse to rise much above the US$60-65 band.
The news comes on the heels of earlier reports that Russia, Saudi Arabia, and Iraq had declared their support for another extension of the cuts. Iran also agreed to the extension yesterday despite the growing internal divide in the oil-exporting cartel.
The decision to extend the cuts is not particularly surprising. With relentlessly rising U.S. oil production, OPEC has few good moves left, if any. Russia has repeatedly noted it would be happy with lower oil prices than its Middle Eastern partners but even so it has once again agreed to continue cutting. Some saw in this a deal, in which the Middle Eastern partners—notably Saudi Arabia—would compensate Moscow for the inconvenience of having to sell less oil with investment contracts in energy and other sectors.
This compensation may not, however, eliminate the risk of Rosneft demanding its own compensation for production restrictions: last month chief executive Igor Sechin said the company would be seeking such compensation from the Kremlin if it agreed to support an extension of the cuts.
What is perhaps more worrying for OPEC is that oil prices reacted weakly to the news: Reuters reported earlier today Brent and WTI had both retreated from the spike that followed the initial announcement of the cuts agreement, pressured by trader worry about the prospects of the global economy in the context of the U.S.-Chinese trade war.
At the time of writing, Brent crude was trading at US$64.87 a barrel and West Texas Intermediate was trading at US$58.91 a barrel, both down from opening.
By Irina Slav for Oilprice.com
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