Russia, Saudi Arabia keen to continue oil output cut

Baku, May 23, AZERTAC

“Brent prices will average $56.30 per barrel and reach $60 by the end of this year”, senior analyst at Thomson Reuters says.

Russia and Saudi Arabia are keen to extend for another nine months the production capping agreement that OPEC and non-OPEC members reached last May, Serkan Sahin, senior analyst in the oil research team at Thomson Reuters told Anadolu Agency on Thursday, according to the AA Energy News Terminal.

On May 15, Saudi Arabia and Russia declared their consensus to extend oil output cuts until March 2018. The declaration came ahead of OPEC's semi-annual meeting on May 25, where the cartel is expected to decide on the extension of the oil output cut until the end of the year.

Sahin noted that they are already expecting OPEC and non-OPEC counter parties to keep last year’s agreement unchanged at least until the next official OPEC meeting in November 2017.

James Henderson, director of the natural gas research program at the Oxford Institute for Energy Studies, said that an announcement of an extension to output cuts is attainable, but asserted that implementing it is more difficult.

Russian production tends to be flat in the first half of the year but normally rises in the second half of the year, according to Henderson, adding that companies in Russia are keen to increase production, but they agreed to the cut.

"I think they understand the necessity of keeping the oil price above $50 so they make their best efforts. But it will be more difficult in the second half of 2017 than it was in the first. So it is achievable but it will take a bit more effort. I think the risk of cheating is higher in the second half of the year," he said.

The key is whether stocks are declining, but an extension of the cut can keep oil prices above $50, he added.

"We will not necessarily see a dramatic increase. I think there will be more of a tendency to keep the oil price in a $50 - $60 range rather than expecting it to rise dramatically. As the year progresses if the cut can be implemented successfully, then one would expect oil prices to rise perhaps to a $55 - $60 range rather than a $50 - $55 range," he argued.

If oil prices stabilize at between $55 and $60 range, then a continuing rise in the drilling of U.S. shale and also increased production can be seen, according to Henderson.

"So I think we need to expect an extension of activity in the U.S.," he added.

He expressed his hope that more countries would support the production cut in the second half of the year, citing the fact that OPEC and non-OPEC countries agreed to participate in the first agreement in May.

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