Russia and nine other non-OPEC producer allies Tuesday approved a nine-month extension of their output cuts at the same levels, joining OPEC in its market rebalancing efforts, ministers said after exiting their meeting.
OPEC had ratified the agreement on Monday. The deal, which had expired Sunday, calls on the 24-country OPEC/non-OPEC coalition to cut 1.2 million b/d of output through March 2020.Russian energy minister Alexander Novak said before the meeting that the extension would send “a strong signal to the market that underlines our resolve.” But he said the producer coalition, which formalized their alliance in a charter signed earlier Tuesday, would “remain flexible to react to changing market conditions.”
Saudi energy minister Khalid al-Falih said that extending the cuts for nine months instead of the six months the group had been considering would allow the deal to cover the seasonally weak first quarter of 2020 and prevent a potential inventory build of 100 million barrels. He also said that the coalition was considering a number of metrics to measure the deal’s success, including changing the targeted level of inventories from the five-year average, which “is getting more distorted with the passage of time,” given the significant builds of the past few years.
Instead, the coalition will go with an inventories target “from a more normal period,” with Falih using 2010-14 as an example. When compared to the current five-year average, the overhang of OECD stocks was about 25 million barrels as of May. But compared with the 2010-14 average, the overhang was a much more robust 214 million barrels. Helima Croft, global head of commodity strategy with RBC Capital, said the new metric showed that the coalition was “raising the bar” on its commitment to market rebalancing. Platts.com
Pix: OPEC headquarters, Vienna
