Future of OPEC supply cap deal looks uncertain as Russia mulls quitting

Alexander Novak, Russian energy minister told his Saudi counterpart Khalid al-Falih when the two met in Baku last week that he cannot guarantee an extension of their agreement to cut production in order to boost oil prices, to the end of 2019, a move that spells danger for the deal.

Novak told Falih that he will extend in June but can only do it until the end of September as he is under too much pressure internally to end the cuts according to report by international media organisations.

OPEC and non-OPEC producers – an alliance known as OPEC+ -implemented its first cuts in 2017 and since then oil prices has doubled to more than $60 per barrel with current US sanctions on Iran and Venezuela providing extra boost. The latest agreement in December was to reduce oil supply by 1.2 million barrels per day from Jan. 1 for six months.

Higher oil prices now provide a temptation to quit but could also precipitate a bust. Oil prices rose about 1 percent on Friday, posting their biggest quarterly rise in a decade, helped by the cuts and U.S. sanctions against Iran and Venezuela.

May Brent crude oil futures contract, which expired Friday, gained 57 cents, or 0.8 percent, to settle at $68.39 a barrel, marking a first-quarter gain of 27 percent. The more-active June contract settled up 48 cents at $67.58 a barrel. U.S. West Texas Intermediate (WTI) futures rose 84 cents, or 1.42 percent, to $60.14 a barrel, and posted a rise of 32 percent in the January-March period, a Reuters report said.

The concern for OPEC is that should Russia pull out of the deal oil prices would drop. Saudi Arabia and other members including Nigeria will be forced to go ahead with the cuts but it will lack the same influence it did when Russia was onboard.

Analysts say it is possible that Russia’s tough stance was a negotiation tactic or a real threat to quit the agreement in order to dilute US influence over oil production. Spurred by a giddy rush to produce in the Permian basin, the United States has become the world’s biggest oil producer and increasingly exerts its influence to the consternation of Russia.

Igor Sechin, head of Russian oil giant Rosneft and an ally of Vladimir Putin, is said to have told the Russian president that the deal with OPEC is a strategic threat and plays into the hands of the United States.

For Saudi Arabia, oil prices have to settle around $70 a barrel to help it balance its budgets but for Moscow around $55 a barrel will not hurt its economy. Nigeria needs oil prices above $60 and would want the cuts to remain.

ISAAC ANYAOGU