OPEC and Russia are heading toward prolonging their oil supply cuts for the whole of 2018 but with an option to review the deal in June, OPEC sources said on Tuesday after Moscow expressed concerns the market could overheat.
The recommendation was made by a joint committee of OPEC and non-OPEC delegates including Russia but has yet to be approved by the ministers from the committee on Wednesday and then by a full OPEC meeting on Thursday, two OPEC sources said.
Oil prices deepened their two-day decline on the news, which the market could perceive as an extension of production cuts by just three months until June 2018 rather than a full year.
The Organization of the Petroleum Exporting Countries, Russia and nine other producers are cutting crude output by about 1.8 million barrels per day until March 2018, and on Thursday their oil ministers will discuss extending the deal.
“It will not be an easy meeting and we always look at various scenarios,” United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui said on Tuesday in Dubai.
The market had largely expected OPEC to prolong the cuts until the end of 2018 to prop up prices and clear an excess of global stocks, but doubts have emerged in the last few days.
OPEC’s leader, Saudi Arabia, has signaled that it wants oil to trade at about $60 a barrel as the kingdom prepares to list shares in national oil champion Aramco and fights a large fiscal deficit.
The Russian government also wants high oil prices ahead of a presidential election in March 2018. But officials in Moscow have voiced worries about pricier oil boosting the rouble, which could undermine the competitiveness of Russia’s economy.
U.S. producers aggressively hedged their future production as oil recently rallied, raising fears of another spike in shale output in the United States, which is not participating in the global production curbs.
“Russia is on board for the extension,” one of the OPEC sources said following the committee meeting.
Goldman Sachs, one of the most active banks in commodity trading and oil producer hedging, said on Tuesday in a note the outcome of the OPEC meeting was uncertain as Brent oil had risen above $63 per barrel.