Oil prices choppy amid possible output deal extension

By Azernews

By Kamila Aliyeva

Crude prices are jumping higher, says Reuters, up around "ten per cent from lows earlier this month".

Optimism over high oil prices restored in the world market ahead of Thursday's meeting of ministers from the 14 countries in the OPEC production cartel, who are expected to agree an extension of supply cuts into next year.

The global efforts aimed at stabilizing oil prices and reaching balance of supply and demand in the market have brought certain positive results such as preserving oil prices at the average level of $48-52 for barrel despite the United States’ increase in shale oil production which undermined OPEC’s decision.

On NYMEX (New York Mercantile Exchange) cost of the US light crude oil increased $0.40 to stand at $50.73. Price of the Brent crude oil at the London ICE (Intercontinental Exchange Futures) fell $0.27 to trade at $53.60.

The price of a barrel of Azeri Light crude oil increased $0.47 to stand at $54.72 on the world markets.

Saudi Arabia and Russia have already declared their consensus to extend oil output cuts until March 2018. Analysts 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.

However, further reduction of oil production is unlikely to be discussed at the meeting because the countries, which joined the OPEC agreement, intend to maintain the market share, while other oil producers which have not joined the agreement are close on their heels.

Non-OPEC member Kazakhstan has said it would struggle to join any new deal on the old terms, as its own output was set to jump while two other non-OPEC nations Oman and Mexico confirmed their support for a nine-month extension.

OPEC's second-biggest producer Iraq, whose output is growing fast, earlier said that it will support extending output cuts in line with any OPEC decision, but favored prolonging the historic deal by just six months.

Nevertheless, Saudi Minister of Energy and Industry Khalid Al-Falih secured the backing after talks in Baghdad with his Iraqi counterpart Jabbar Al-Luaibi.

“Iraq agrees with Saudi Arabia's position on extending the agreement to reduce oil production for an additional nine months," the Iraqi minister announced on May 22.

Iran is most likely to go along with such extension plan as well. The Islamic republic was the only OPEC member allowed to increase its output under the supply cut deal.

Azerbaijan, whose participation in joint oil production cuts is defined at 35,000 barrels per day, also back the extension.

Energy Minister Natig Aliyev said that the process of stabilizing the oil market and current prices for the crude, fulfillment of obligations by oil nations showed the correctness of this decision.

Thus, the decision to extend cuts seems to be almost a done deal, while the previous deal runs out next month. Despite concerns over rising U.S. production, that could be enough to inject fresh impetus into the oil price rally.