Saudi Arabia, Russia Want Nine-Month Extension to Deal on Oil Output Cuts



Saudi Arabia, Russia Want Nine-Month Extension to Deal on Oil Output Cuts

World’s top two crude producers to discuss proposal with other oil exporters

By Summer Said, Neanda Salvaterra and James Marson Updated May 15, 2017 3:02 p.m. ET

The world’s two biggest crude-oil producers, Russia and Saudi Arabia, sent petroleum prices higher Monday with a joint statement that output cuts should be extended into March 2018.

The rare joint statement is the strongest signal yet that the Organization of the Petroleum Exporting Countries and a coalition of producers outside the cartel will continue their efforts to influence oil prices by cutting supply. OPEC’s 13 members and 11 non-OPEC producers agreed last year to cut almost 1.8 million barrels a day through June in hopes of bringing supply and demand back into balance.

There have been doubts that the OPEC coalition’s production cuts were having their desired effect of eliminating a glut of crude that has weighed on the market. Resurgent production from U.S. shale producers has helped blunt OPEC’s efforts, and prices—after a quick boost—have swung between $48 and $52 a barrel in the past month.

“There has been a marked reduction to the inventories, but we’re not where we want to be,” Saudi Arabia’s energy minister, Khalid al-Falih, said in China after a meeting of the G-20 countries, adding that a “general consensus” was emerging that extending the cuts “is the right approach and the right thing to do.”

‘The agreement needs to be extended, as we will not reach the desired inventory level by end of June.’

—Saudi Arabia’s energy minister Khalid al-Falih

The Russia-Saudi agreement comes 10 days before OPEC is scheduled to hold a formal meeting in Vienna on May 25 to decide on production cuts. Saudi Arabia is OPEC’s most influential member, while Russia is the largest producer among the coalition outside the cartel that joined the production-cutting effort.

U.S. crude futures rose 2.11% to $48.85 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 1.93%, to $51.82 a barrel on ICE Futures Europe.

The move higher caps the largest four-day-gain for both benchmarks since December, as crude prices have rebounded after a sharp selloff earlier this month.

OPEC and its partners are now widely expected to agree to extend the production cut, which was meant to draw down record levels of oil placed in storage when crude was cheap.

“It seems more or less a slam dunk that there is going to be a continuation of the cuts,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “The signals are pretty strong and clear from both OPEC and Russia. They are really removing a substantive amount of the uncertainty about the upcoming decision in May.”

Last week, OPEC said crude stockpiles in the most industrialized nations increased from the fourth quarter of 2016 by 31 million barrels to just over 3 billion—276 million barrels above the five-year average.

“The agreement needs to be extended, as we will not reach the desired inventory level by end of June,” Mr. Falih said. “Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018.”

Major producers are willing to extend the cut and are working to bring in new non-OPEC participants including Turkmenistan and Egypt, according to people familiar with the matter.