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Page added on May 16, 2017

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Saudi Arabia, Russia push to extend oil output cut until March 2018

Saudi Arabia and Russia, the world’s top two oil producers, agreed on Monday on the need to extend output cuts for a further nine months until March 2018 to rein in a global crude glut, pushing up prices.

Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said in a statement they would “do whatever it takes” to reduce the inventory overhang, using a phrase coined by European Central Bank President Mario Draghi five years ago in his successful bid to defend the euro.

The Organization of the Petroleum Exporting Countries meets in Vienna on May 25 to consider whether to extend output cuts agreed in December last year between OPEC and 11 non-member countries, including Russia.

Benchmark Brent oil prices LCOc1 rose, trading up $1.39 at $52.23 per barrel by 1407 GMT as the market had previously expected the cuts to be extended by as little as six months.

With a nine-month extension now the minimum expectation for the OPEC meeting, the group has a lot of work to do to persuade its members and some non-OPEC producers to back the move.

OPEC member Iraq, whose production is growing fast, has said it would support renewing the deal only for six months.

Non-OPEC member Kazakhstan said on Monday it would struggle to join any new deal on the old terms, as its own output was set to jump. Oman said it fully supported the idea of a nine-month extension.

Saudi Arabia’s Energy Minister Khalid al-Falih (L) and Russia’s Energy Minister Alexander Novak attend a joint briefing in Beijing, China May 15, 2017. REUTERS/Aly Song

OPEC wants to reduce global oil inventories to their five-year average but so far has struggled to do so. Stockpiles are hovering near record highs, partly because of rising production in the United States, which is not part of the existing deal.

“There has been a marked reduction to the inventories, but we’re not where we want to be in reaching the five-year average,” Falih told a briefing in Beijing alongside Novak.

“We’ve come to the conclusion that the agreement needs to be extended.”

PUTIN’S SUPPORT

The briefing took place as Russian President Vladimir Putin was in Beijing on an official visit. Putin, Russia’s ultimate decision-maker, said he had recently met with the biggest Russian oil firms and they backed a nine-month extension.

“I feel optimism because our main partner in this process, and our main partner without doubt is Saudi Arabia, has fully implemented all the agreements that took place up to now, and secondly, Saudi Arabia wants to maintain stable and fair prices for oil,” Putin said.

Russia and Saudi Arabia heavily depend on oil revenues. Last year they agreed the first joint output cuts in 15 years despite major political differences, including their support for opposite sides in the Syrian war.

Saudi, the de facto leader of OPEC, and Russia, the world’s biggest producer, together control a fifth of global supplies. Their latest joint action was spurred by oil prices dropping to under $50 per barrel, below their budget needs.

Under the current agreement that started on Jan. 1, the 13-country OPEC and other producers pledged to cut output by almost 1.8 million barrels per day in the first half of the year.

“OPEC and Russia recognize that in order to get the market back on their side they will need ‘shock and awe’ tactics where they need to go above and beyond a simple extension of the deal,” said Virendra Chauhan, Singapore-based analyst at Energy Aspects.

“The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market.”

So far, OPEC producers have not yet debated whether to deepen the cuts from July, OPEC sources told Reuters.

If producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter, said Edward Bell, director of commodity research at Emirates NBD in Dubai.

U.S. drilling activity RIG-OL-USA-BHI last week rose to its highest in two years, while U.S. production has jumped more than 10 percent since its mid-2016 trough.

reuters



17 Comments on "Saudi Arabia, Russia push to extend oil output cut until March 2018"

  1. rockman on Tue, 16th May 2017 9:00 am 

    Still searching for that sweet spot where production X price = max revenue. Obviously that will always be a moving target given high oil prices lead to additional drilling. But even less predictable is global economic activity that can have a greater impact on prices then production levels. The best proof of that was the global recession of the early 80’s: from 1980 to ’85 KSA reduced its production by 70% to just 3.4 mm bopd. And how did that reduction aid oil prices? During that same period prices fell from $103/bbl to $24/bbl.

    And thus the reason to not take anyone’s prediction of oil prices a few years out seriously. Not only do they have to predict oil production rates but more critically be able to predict the global economy.

  2. bobinget on Tue, 16th May 2017 9:11 am 

    Reports:
    Iran will come on board shortly.

    It seems national suicide is losing appeal.

  3. Sissyfuss on Tue, 16th May 2017 10:19 am 

    Saudis are conducting a bait and switch with their cuts. Their IPO, borrowing, and cutting handouts to the restless populace means cutting their revenue stream would be suicidal(sorry ISIS.) The only retort you can believe from the Wahabi lobby is “Death to America.”

  4. bobinget on Tue, 16th May 2017 10:57 am 

    Inclined to agree with Sissy.

    I also happen to believe the Saudis can’t keep stressing out old, nearly exhausted, wells much longer or too little oil be remaining in the tiny corner they hope to IPO scam in 2018.

    (oh, that ‘Death to America’ rant, better be muted somewhat).
    http://www.independent.co.uk/news/world/americas/donald-trump-arms-sales-saudi-arabia-bahrain-blocked-barack-obama-yemen-civil-war-middle-east-a7568911.html

    Jolly-Old selling weapons to KSA as well.
    (Yemen has no PR Dept.)

    The admission by the UK government that the Saudi-led coalition used UK-made BL-755 cluster munitions during the armed conflict in Yemen, comes months after Amnesty International and British media outlets reported that these weapons had been used in the country.

    Unexploded remnants of cluster munitions have proved deadly for Yemenis, killing or injuring at least 85 civilians, including children. After 20 months of war, the British government has finally raised the issue with Saudi Arabia, which responded by vowing to stop using this particular weapon in its ongoing Yemen campaign. But the UK’s mea culpa doesn’t go far enough, especially as UK officials deny another, much larger accusation – the sale of other weapons, including precision-guided munitions, which the Saudis and their allies have used in unlawful strikes against civilians and civilian structures in Yemen.

    A UK-manufactured bomb struck storage hangars in Hodaida on January 6, 2016. The hangars stored school furniture, car parts, dry and canned food. Two of them contained production workshops for zinc sheeting and metal fencing grates.
    EXPAND A UK-manufactured bomb struck storage hangars in Hodaida on January 6, 2016. The hangars stored school furniture, car parts, dry and canned food. Two of them contained production workshops for zinc sheeting and metal fencing grates. © 2016 Priyanka Motaparthy/Human Rights Watch
    Since March 2015, the UK has approved £3.3 billion in military sales to Saudi Arabia, according to the London-based Campaign Against Arms Trade. Yet in November, the UK Foreign and Commonwealth Office concluded, despite considerable evidence to the contrary, that there was no “clear risk” of serious Saudi breaches of international humanitarian law in Yemen. (30)

  5. rockman on Tue, 16th May 2017 12:24 pm 

    “The admission by the UK government that the Saudi-led coalition used UK-made BL-755 cluster munitions during the armed conflict in Yemen…”. The implication that the UK didn’t expect any of the weapons they sell would be used in Yemen (or any other country) is bizarre. So the Brits expected them to be deployed where…the moon…Antarctica? Where on earth could they be used that there would be little or no potential for civilian collateral damage?

    So what is there for the UK to admit? They sell weapons, just like the USA, that are designed to kill human beings. And then they kill as designed. No “admission” needed…just BAU.

  6. CIA-MOLE on Tue, 16th May 2017 10:52 pm 

    current oil production is equivalent to LT median flow of Delaware River at Montague NJ
    https://waterdata.usgs.gov/ny/nwis/current/?type=flow

  7. CIA-MOLE on Tue, 16th May 2017 10:53 pm 

    https://goo.gl/maps/rEx8yNAWtoT2 delaware riv

  8. GregT on Wed, 17th May 2017 1:32 am 

    “current oil production is equivalent to LT median flow of Delaware River at Montague NJ”

    Well then, problem solved. Amazing that nobody ever figured that out before.

  9. bobinget on Wed, 17th May 2017 10:58 am 

    Today’s EIA report:
    http://ir.eia.gov/prosecutor/wpsrsummary.pdf

    Was considered bullish due to increased Exports.
    Keep in mind, we are selling off SPR (to raise cash).
    Adding imports (8.6) million barrels (970,000more than last week) this report was intended to be bearish.

    Note that jet fuel goes higher weekly. IMO a good economic indicator .

    Radio Active President

    Looks like we will be getting a new president (Pence) this summer. The current one is about to be indicted
    for money laundering. Forget about all those impeachable offenses, that’s window dressing.

    Donald Trump can’t serve as president while on trial
    for at minimum six counts counts of money laundering,
    and being a dumb ass traitor.

    If Trump has the brains of a donkey he would order AF-1 to fly to Russia where he belongs. Putin may have him killed, blame the CIA, rather then letting him spill some expensive beans.

    Lesson learned: Don’t fuck with the FBI.

    My guess, DJT is already trying to cut a deal. He could plead insanity and get out on the 25th Amendment.
    He has already demonstrated his willingness to throw everyone in his circle under the buss.

    His staff and everyone running foreign and domestic branches of Trump Inc. needs to lawyer up at once.

    Republicans can still save the GOP by ordering a special prosecutor this week. If they don’t, they took Putin’s bait. When Putin determines Trump is no longer of use, he will make such a Wikileak, everyone will
    blush.

    One more thing. DJT will be the last Presidential Candidate not to show his taxes and actual health records.

  10. DerHundistlos on Thu, 18th May 2017 1:59 am 

    Pence is at least as bad, but probably far worse then the Cheeto.

  11. Cloggie on Thu, 18th May 2017 3:07 am 

    Old timers bobinget, DerHund, Boat and Ghung are certain that the US empire is built for all eternity and that Trump is merely a hiccup that will be dealt with with lawyers and if necessary by CIA/FBI stray bullets.

    They are in for a rude awakening.

  12. Davy on Thu, 18th May 2017 5:10 am 

    “Ghung are certain that the US empire is built for all eternity”. Please Clog, where has Ghung said this? You are drifting into lying fake news arena.

    “They are in for a rude awakening.” You are in for a rude awakening when your Eurasian Century become one of decline and decay and no I am not saying that because I am promoting the continuation of the American Empire.

  13. Cloggie on Thu, 18th May 2017 6:37 am 

    Please Clog, where has Ghung said this? You are drifting into lying fake news arena.

    I didn’t say that he said it, I say that is what he thinks. What the f* did say is that he hoped that the deep state will finish Trump off. Just like that. But what do you expect from somebody who in the seventies studied in the freaking USSR, the largest mass murdering system in world history (and vaillant ally of the US in WW2, but I digress).

    Once a commie, always a commie.

    bobinget, DerHund, Boat and Ghung… they are all from the same mold… they want to see Trump removed, by all means, so that the US empire can continue BAU. They are all folks with more than average income (don’t have to live in the multicult), highly individualistic, and loyal to the US empire, because it serves their narrow personal interests. But what they fail to see is that “their own deplorable population” is about to revolt against THEM. Because they will refuse to let themselves being pushed into third world conditions.

    You are in for a rude awakening when your Eurasian Century become one of decline and decay and no I am not saying that because I am promoting the continuation of the American Empire.

    Even if decline/decay sets in, don’t know if it will, could be, but I am not so sure as you seem to be… this will absolutely not mean that geopolitics, alliances etc. will seize to have a meaning. They won’t.

  14. bobinget on Thu, 18th May 2017 1:17 pm 

    Forget about that poster above. This mass of contradiction is posing as a mild mannered Tory riling up the Proletariat.

    News goes on w/o Trump.

    Below is a juicy bit stolen from IV board. See if you can decipher..

    Lee Saks: “Saudi’s pledge to compensate if deal breached”.
    If that is accurate, Saudi has agreed to resume the mantle of the swing producer. That is a change in policy, but Saudi also may begin to recognize operational realities. When I was running reservoir asset, a big part of my job was justifying the Maximum Efficient Rate, or MER to operate that field. The MER was a combination of reservoir and economic management. This reservoir was under a combination of natural gas and water injection for pressure management, and for a short period of time, I could significantly increase production, by ignoring GOR and WOR controls on the wells. Eventually one would pay the piper and it could be demonstrated that the ultimate recovery, and most importantly, the NPV, would decrease. I suspect that several reservoirs in Saudi have been operated above their MER, and if you look at the decline in Iranian production, you can see declines in the last several months, even though Iran is exempt from the deal. Horizontal wells were wonderful tools for extending the MER, and I’m sure they worked well in Saudi as well. But even in Saudi, there is still an MER. (30)

    Bottom lines.
    When Venezuela goes off line for a time, neither KSA, lame Libya, sick Nigeria or Iran will be able to fill in a huge hole in US imports.

    AND: ‘they’ said ‘Beak oil was Dead’.

    “That parrot is Not dead, just resting”

  15. Sissyfuss on Thu, 18th May 2017 3:38 pm 

    Cease, dear Clognacious. Not seize. Seize is what your heart is preparing to do at any moment.

  16. Cloggie on Thu, 18th May 2017 4:22 pm 

    Thanks Siss.

    #SinkThroughTheFloorInShame

  17. tk on Fri, 19th May 2017 6:07 am 

    How to “sell”
    terminal depletion
    as if it were deliberate action…
    “cuts”…
    Yeah, sure…

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