Oil in Global Economy Series Iraq supports Saudi-Russia deal extension

Marco Green
May 23, 2017

Oil prices rose on Monday, supported by reports that an OPEC-led supply cut may not only be extended into next year but might also be deepened to tighten the market and prop up prices.

Iraq on Monday backed a proposal from Saudi Arabia and Russian Federation to extend output cuts for nine months, removing one of the last remaining obstacles to an agreement at the OPEC meeting in Vienna this week.

Although OPEC delegates and minister signaled a growing consensus ahead of the meeting on Thursday, Kuwait's Oil Minister said some nations still aren't on board.

The deal "has been working and I know it will work even better for the second half", he said, before traveling to the Austrian capital. The first budget proposal from President Donald Trump helped stall the rally, however, after it included a plan to sell half of the US emergency crude stocks. "It will grow but there are limits".

Goldman Sachs, one of the most active banks in commodities trading, said on Monday a nine-month cut extension would help rebalance inventories in 2017 and keep Brent prices near $57 per barrel. Both have regained some volumes in recent months and are expected to add more soon, adding to OPEC's challenge in rebalancing the market. "If the need arises for any correction, this can be done in coming ministerial conferences", the first OPEC delegate said.

Pradhan also said OPEC producers should work towards a "responsible price" for oil and Asia should be treated on a equal footing with Western consumes.

Analysts say that soaring US shale output is the reason for the greater security in its supply.

Oil prices initially fell 1 percent on Tuesday after U.S. President Donald Trump proposed to sell half of the United States' Strategic Petroleum Reserve (SPR) in the next 10 years as well as to speed up Alaskan exploration.

The Trump budget proposes to start selling SPR oil in fiscal year 2018, which begins on October 1, with sales that would generate $500 million, according to the documents.

After a meeting with Mr. Khalid al-Falih in Baghdad, Iraqi oil minister Jabar Ali al-Luaibi said he supports the Saudi-Russia joint proposal to support the deal extension of another 9 months.

Norway's oil ministry said later on Tuesday it had no plan to join cuts but had a good dialogue with OPEC.

OPEC and its allies were poised to continue their production cuts for another nine months after Iraq backed an extension, removing one of the last remaining obstacles to an agreement.

"The inclusion of smaller producing non-OPEC countries such as Turkmenistan, Egypt and the Ivory Coast would be a negligible boost, in our view", Deutsche said.

Iraq has the worst record of compliance with its pledged cuts, pumping about 80,000 more barrels of oil a day than permitted during the first quarter.

Other reports by Click Lancashire

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