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Crude oil will remain in the range between US$65 a barrel and US$75 a barrel, according to the Omani oil minister, Mohammed bin Hamad al-Rumhy. Reuters quoted a report by Oman’s state news agency as saying the minister had reiterated the country’s commitment to the OPEC+ production cut agreement.
A Brent crude price of US$75 per barrel would be welcome news for Saudi Arabia, but not so welcome to its most important ally in the OPEC+ agreement: Russia. Unlike Saudi Arabia, which needs much higher prices to make its budget work this year, Russia is in fact better off with cheaper oil as it would stimulate more exports.
So far, Moscow has played along, though there have been indications that the playing along has been a bit reluctant and reports from Russia have confirmed the reluctance: the state oil companies and Lukoil would much rather expand production than cut it. Meanwhile, Saudi Arabia is trying to convince its partners to extend the cuts beyond June.
According to Reuters, Russia may be willing to continue cutting, but not until the end of the year as Saudi Arabia would prefer it. Three months is what Russia is more likely to agree to and this will likely have an effect on prices once it is reported. If the world’s second-largest producer of oil decides to pull out of the cut deal altogether, a price slump would be inevitable.
Related: US Oil Production Dips For First Time In Nearly Six Months
Last month, Goldman Sachs said it expected OPEC and its partners to reduce global supply sufficiently by April, using what commodities chief Jeffrey Currie called a “shock and awe” strategy. This would push prices above US$70 a barrel, Currey said at the time, before OPEC announced how it would wind down the cuts without shocking the market.
Extending the cuts into the second half of the year would help keep them higher but the extension is far from certain as Saudi Arabia would need to convince some of its fellow OPEC members such an extension is indeed in everybody’s best interest and not just the Kingdom’s.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.