OPEC and non-OPEC producers led by Russia agreed on Thursday to extend oil output cuts until the end of 2018 as they try to finish clearing a global glut of crude while signaling a possible early exit from the deal if the market overheats.
Russia, which this year reduced production significantly with OPEC for the first time, has been pushing for a clear message on how to exit the cuts so the market doesn’t flip into a deficit too soon, prices don’t rally too fast and rival U.S. shale firms don’t boost output further.
Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy champion Aramco next year and would hence benefit from pricier crude.
The producers’ current deal, under which they are cutting supply by about 1.8 million barrels per day (bpd) in an effort to boost oil prices, expires in March.
Saudi Energy Minister Khalid al-Falih told reporters the Organization of the Petroleum Exporting Countries and non-OPEC allies had agreed to extend the cuts by nine months until the end of 2018, as largely anticipated by the market.
OPEC also decided to cap the combined output of Nigeria and Libya at 2017 levels below 2.8 million bpd. Both countries have been exempt from cuts due to unrest and lower-than-normal production.
Falih said it was premature to talk about exiting the cuts at least for a couple of quarters as the world was entering a season of low winter demand. He added that OPEC would examine progress at its next regular meeting in June.
“When we get to an exit, we are going to do it very gradually … to make sure we don’t shock the market,” he said.
OPEC and Russia together produce over 40 percent of global oil. Moscow’s first real cooperation with OPEC, put together with the help of President Vladimir Putin, has been crucial in roughly halving an excess of global oil stocks since January.
With oil prices rising above $60, Russia has expressed concerns that an extension for the whole of 2018 could prompt a spike in crude production in the United States, which is not participating in the deal.
A joint OPEC and non-OPEC communique said the next meeting in June 2018 would present an opportunity to adjust the agreement based on market conditions.
The Iraqi, Iranian and Angolan oil ministers also said before Thursday’s meetings that a review of the deal was possible in June in case the market became too tight.
International benchmark Brent crude LCOc1 rose around 0.5 percent on Thursday to trade above $63 per barrel.
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