Opec moves towards output cap extension as meeting commences

Opec and its oil-producing allies shifted on Monday towards extending their daily output caps, sending oil prices racing higher before the outcome of the group’s official gathering.

Ministers from the 14-nation Organization of the Petroleum Exporting Countries (Opec) met in Vienna to discuss output, before gathering a day later for Opec+ − which is a grouping of 24 oil-producing countries that includes Russia and together accounts for almost half of global crude.

The enlarged crude producing club had already decided in December to remove 1.2 million barrels per day from the market to bolster prices and soak up excess supplies.

Russian President Vladimir Putin and Saudi Arabia agreed on Saturday to extend the deal by between six and nine months, but the move provoked consternation from some quarters.

The news nevertheless fired New York oil prices above $60 per barrel, with sentiment boosted also by the China-US trade truce agreed at the G20 in Osaka.

“Everyone supported the proposition to extend for nine months the limits agreed in December,” said Russian Energy Minister Alexander Novak ahead of the group’s main meeting.

Saudi Arabia’s Energy Minister Khalid Al Falih was meanwhile swift to deflect criticism from archfoe Iran that Opec could “die” in the face of Riyadh and Moscow’s Osaka deal.

Falih told reporters before Opec’s main meeting: “I think Opec is more vibrant than ever. As Mark Twain said once, the reports of Opec’s death have been repeated many times, and every time it was... greatly exaggerated.

“We believe that oil as a commodity is unique. It’s the blood of the global economy. Ideally every producer should be around the table with us today.” He added: “Saudi Arabia and Russia are the largest producers, we are delivering the largest cuts, we (...) agree first and then discuss our agreement with our colleagues from other countries.”

United Arab Emirates Energy Minister Suhail Al Mazrouei predicted that Opec would agree to the plan amid the brighter post-G20 demand outlook.

“We in the United Arab Emirates see that nine months would be more appropriate and we look forward to a healthier demand in the second half of the year after the good results from the G20 meeting,” Mazrouei said.

Kuwait’s Oil Minister Khaled Ali Al-Fadhel concurred, adding: “Because of the positive outcomes of the G20... we are feeling more and more confident that things are looking better from now.”

Opec and its oil-producer allies had decided in December to trim output after prices tanked at the end of last year on fears of slower global growth. In reaction the market soared by a third in the first quarter of 2019.

The group meanwhile remains on red alert over escalating US-Iran tensions that have also fuelled strong oil-price gains, particularly over disputed attacks on tankers in the Straits of Hormuz.

In afternoon deals on Monday, West Texas Intermediate crude stood at $59.60, up 1.9 per cent, as some analysts cast doubt on whether the Opec move would lift prices in the long run.

“As such, the new deal will probably fail to address the rising non-Opec supplies at a time the world economy is slowing, which could mean lower demand growth,” Forex.com analyst Fawad Razaqzada told AFP.

“Thus, the oil market is likely to be oversupplied again in due course, which means prices may struggle to push significantly higher from here,” he added.

Meanwhile, Russia reduced oil production in June by more than the amount agreed in a global deal to cut output, the energy minister and industry sources said on Monday, as the sector still felt the impact of a contaminated crude crisis that crippled exports.

Russian Energy Minister Alexander Novak said that Russian oil output last month fell by 278,000 barrels per day (bpd) from an October 2018 baseline of 11.41 mln bpd, Russian news agencies reported, indicating output in June of about 11.13 million bpd.

Under a deal reached with Opec and other oil producers, Russia had agreed to reduce output by 228,000 bpd from the October 2018 baseline, indicating it should keep total output around the 11.17 million-11.18 million bpd level.

Production had fallen much further in May to 11.11 million bpd, after contaminated oil was discovered in Russia’s Druzhba pipeline network in April that led to the suspension of exports via the system that supplies crude to Europe and beyond.

oil supplies via the pipeline, which feeds export routes supplying the Baltic port of Ust-Luga, central Europe and Germany, have resumed since then but not in full.

Agencies