Novak says Russian Federation, other producers support extending global deal

Ann Santiago
July 2, 2019

Saudi Arabia, the biggest producer within OPEC, and Russian Federation, the cartel's most powerful ally, met over the weekend to discuss extending supply curbs that were first introduced in 2017 after global oil prices crashed.

"Demand is softening a little bit, but I think it's still healthy", the Saudi minister said.

Russian President Vladimir Putin said he agreed with Saudi Arabian Crown Prince Mohammed Bin Salman to extend the OPEC+ deal at current production levels for the rest of this year and potentially into early 2020.

Khaled Al Falih talks to the press on the sidelines of the 176th meeting of OPEC on Monday in Vienna, Austria. Only a few days later, with clear instructions from their leaders, respective oil ministers met and agreed the details of production cuts. Saudi Arabia and Russian Federation are the largest members in the group and are usually able to steer the alliance toward their preferred strategy.

The cartel meanwhile remains on red alert over escalating US-Iran tensions that have fuelled recent strong oil-price gains - but it and other producers are unlikely to end output cutbacks just yet.

That alliance successfully mopped up some of the glut in oil stockpiles that caused oil prices to crash.However, these major oil producers continue to be challenged by skyrocketing American shale oil output, the US-China trade war and signs that demand for oil is deteriorating. "The prize of this sacrifice is there for everyone to see - the two main crude oil futures contracts are up more than $1.50 a barrel this morning", PVM analyst Tamas Varga said.

Front-month futures for September touched an intraday high of $66.44 a barrel and were up $1.57, or 2.4%, at $66.31 a barrel by 0436 GMT.

Factions in modern OPEC have been amplified by USA sanctions on Iran and Venezuela, which have sidelined hundreds of thousands of barrels of crude.

Since OPEC joined forces in 2016 with other producers including Russia, Kazakhstan and Mexico, they have sought to establish an enduring basis for cooperation.

Falih said the new deal would help reduce global oil stocks, balance the market and spur investments in future energy supplies.

Zanganeh said he would not object to deepening the cuts but expressed frustration that Putin had announced the deal at a G20 summit in Osaka before waiting for OPEC to gather in Vienna.

Iran's minister of petroleum says some members of the Organization of the Petroleum Exporting Countries (OPEC) risk destroying the energy group, in an apparent dig at Saudi Arabia.

"Worsening tensions between the US and Iran add potential for oil price volatility that could be tricky for OPEC members to manage", said Ann-Louise Hittle, vice president, macro oils, at consultancy Wood Mackenzie.

Iran's exports, in contrast, have plummeted to 0.3 million barrels per day in June from as much as 2.5 million bpd in April 2018 due to Washington's fresh sanctions.

Mr Zanganeh said Iran would give its approval to an extension regardless of whether it was for six months or nine.

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