Russia, Saudi Arabia agree to prolong OPEC oil agreement

The oil harbor in Novorossiysk the southern Russian seaport town in the Black Sea territory

Ministers meeting in Vienna agreed to prolong supply curbs by a further nine months, delegates said, asking not to be named because the talks were ongoing. Most of the cuts came from OPEC nations, who agreed to cut 800,000 barrels per day, with the rest of the cuts coming from Russian Federation and other countries.

"It's going to be hard to hold onto the gains: there's going to be a question in the market as to whether the cuts are enough", said John Kilduff, a partner at Again Capital Management in NY. The measure had first been implemented back in 2017 when the OPEC was determined to ensure that stock of oil at a global level got drained. The prospect of increased US production of oil from shale deposits also hangs over the market.

To some degree, those opposing forces have counter-balanced each other, but the dueling dynamics make it hard to predict what's likely to happen with the price of oil, and that may make decisions for OPEC leaders challenging.

"The Saudi-Russia deal, combined with a positive outcome from the US-China trade talks at the G-20, should allow oil prices to move higher", Amrita Sen, chief oil analyst at consultants Energy Aspects in London, told Bloomberg News. Over the longer term however, demand could weaken according to the International Energy Agency, which cut its demand estimate earlier this month.

Since the beginning of 2019, Benchmark Brent crude has risen more than 25%, but the prices could drop, as a slowing global economy crushes the demand & US oil floods the market, report sources close to the matter.

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Falih said the new deal would help reduce global oil stocks, balance the market and spur investments in future energy supplies. The cartel and its allies are also anxious about softening demand growth.

The fact that Russian Federation and Saudi Arabia effectively announced the deal before OPEC began to meet will likely anger smaller members of the group, who may feel sidelined.

Some of OPEC's production cuts are outside of the cartel's control.

Saudi Arabia, the biggest producer within OPEC, and Russian Federation, the cartel's most powerful ally, met over the weekend to discuss extending supply curbs that were first introduced in 2017 after global oil prices crashed. What's more, Saudi Arabia unilaterally lowered production below its official OPEC+ target, pumping 9.7 million barrels a day in May, compared with a ceiling of 10.3 million. That compares with its OPEC+ ceiling of 10.3 million. The cartel sees demand for OPEC crude reaching 30.5 million barrels a day in 2019, about 1.1 million less than in 2018.

A proposal to rollover production cuts looks likely to win the support of Iran, Saudi Arabia's regional rival, despite rising tensions between the two countries over the war in Yemen and attacks on oil tankers in the Strait of Hormuz.

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