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Russia may join a proposed extension of the oil production cuts agreed with OPEC at the end of last year, First Deputy Oil Minister Anton Siluanov told Reuters today. The most important issue to consider is what the oil price gains would be from an extension as opposed to the potential loss of market share to U.S. producers.
“There are many arguments both in favor of the extension and against it,” Siluanov said, adding “Of course, we need price stability and predictability, this is good. But we see that all these deals with OPEC result in our American partners boosting shale oil output and grabbing new markets.”
The December 2018 agreement between OPEC, Russia and several other smaller producers aimed to reduce global supply by 1.2 million bpd to prop up stubbornly low prices. However, after the cuts did their job and prices rose, the United States removed sanction waivers for eight large Iranian oil importers, prompting a price rise. This combined with lower production in Venezuela and the continued threat of outages in Libya to push prices higher.
Saudi Arabia was the first to mention the possibility of extending the production cuts beyond their original end-June expiry as it strives for even higher oil prices despite the danger of market share loss. In fact, the Kingdom has been boosting its market share in Asia as refiners need a quick replacement for lost Iranian barrels.
Earlier this month, it emerged that several OPEC members were in favor of extending the production cuts to the end of the year for fear that prices will drop sharply if the cuts are ended in June.
There are some grounds for this fear: the latest escalation between China and the U.S. has renewed the worry about a global economic slowdown that will dampen oil demand, and U.S. production continues to push higher, capping the bullish potential for benchmarks.
OPEC and its non-OPEC partners are meeting next week in Vienna to discuss next steps after the meetings, originally scheduled for late June, were rescheduled at the request of Moscow.
By Irina Slav for Oilrpice.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.