The world’s major oil producers are expected to extend production cuts to shore up the oil price on Thursday, after Saudi Arabia said it wanted curbs to continue until the end of next year.
Ministers from oil cartel Opec and Russia are in Vienna to decide whether to continue the reductions, which started in January and have lifted a barrel of Brent from $40-50 (£30-37) last year to more than $60 now.
Experts think the meeting is almost certain to lead to an extension, and the markets have already priced in that outcome. The key question is how long the existing curbs – which last until the end of March 2018 – will be extended for.
Khalid Al-Falih, the Saudi energy minister, told reporters that his preference was for a nine-month extension and he expected other countries would back him.
As the biggest producer in Opec and the country bearing the brunt of the cuts of 1.8m barrels a day, Saudi Arabia is the key player at the talks. The kingdom needs a strong oil price to support the planned $2tn listing of its national oil company in the second half of 2018, which would be the world’s biggest stockmarket flotation.
Al-Falih said that a decision in May by Opec and its allies to extend the curbs to March 2018 had driven global oil supply and demand closer into balance.
“Market stability has improved and the sentiment is generally upbeat. The rebalancing trend has accelerated and inventories are on a generally declining trend,” he said.
The minister said that the action taken by the cartel, which along with geopolitical uncertainty has pushed prices to two-year highs, had demonstrated the club’s power.
“Opec’s credibility has also been enhanced, although a couple of members have lagged behind and we hope they will pick up their conformity [to the targets] in months to come,” he said, in an apparent reference to Iraq and UAE.
However, he cautioned that “more work needed to be done” and meeting Opec and Russia’s goal of rebalancing the market would require “hard work”.
Russia is seen as preferring a shorter extension, of three months, to avoid losing too much market share to US shale producers. The number of US oil rigs has leapt by more than a third since a year ago, when Opec and Russia first agreed to curtail production.
Analysts at the Vienna meeting said they were anticipating a nine-month extension, with an option to review it after three months.
Joe McMonigle, energy policy analyst at HedgeEye, said: “For the Saudis, the nine-month extension is critical because the Aramco IPO [initial public offering] is planned for the second half of 2018, and they want the production cut agreement to still be in effect during the IPO.”