Saudi says extending oil cuts, adding small producers enough to drain stocks

Khalid al-Falih spoke ahead of a meeting on Thursday between the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation, where they are expected to extend the production cut pact.

Does this mean the resurgence of U.S. shale oil production after two years of desolation will result in another crude price bust, similar to the one seen in late 2014?

Even though, according to the Saudi Energy Minister Khalid Al-Falih, all oil producers have agreed to extend oil caps by nine months, also possibly decreasing the current levels of extraction, global oil prices are not expected to post a significant rally in the near-term.

"Iraq as the second-largest producer in OPEC confirms its achievement to the commitment to implement the production cut and has recently announced its readiness to a further extension to the cut agreement", Falah Alamri, head of oil marketer SOMO, said delivering the speech at an industry event in London on the minister's behalf. These price levels would likely choke USA shale production, but would also strain Opec. "They already are", said Amrita Sen, the senior oil market analyst at Energy Aspects consultants.

The cartel's national officials - representing the 13 member countries - plus officials from OPEC's Vienna secretariat - are to meet on Wednesday and Thursday to discuss the market.

The Organization of the Petroleum Exporting Countries, Russia and other producers originally agreed to cut production by 1.8 million barrels per day (bpd) for six months from January 1. The deal was the first Opec had made since 2008 and a reversal of a two-year policy pinned on protecting market share rather than shoring up prices.

Producers have steadily improved their compliance with the deal, with Russian Federation achieving its 300,000 barrel-a-day reduction after a slow start, Al-Falih said.

"Stronger demand into 2018 and 2019 would surely help clear the global glut", Bank of America Merrill Lynch said in a research note yesterday. So maintaining the current discipline of production cuts is key and we expect the current quotas to hold for the most part. The report pegged OPEC's member compliance with the cuts at 96 percent. Iran was also allowed to raise output because sanctions had crippled its supply.

Markets are now entering the high-demand season, Al-Falih said today. "They [the Iranians] will be treated like everybody else", said the oil minister.

Saudi Arabia now produces close to 10 million bpd, Falih said.

"We have patiently worked together but I think there is good faith, there is good cooperation, and going forward we intend to build on this relationship".

"All options are open", an OPEC source said, adding that a deeper cut in output was an option depending on estimated growth in supply from non-OPEC producers, mainly USA shale oil firms, among other scenarios.

"Our interest is stable, healthy, balanced supply and demand on a global level, and for us to achieve that, we need stability for United States shale".

"We will do whatever is necessary", he said, expressing an openness to "creative" solutions. "Shale continues to grow and will do so. But it obviously is a challenge for the global market and a renewed threat to OPEC and their designs of keeping prices up", John Kilduff of Again Capital said.

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