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Oil in Global Economy Series Iraq supports Saudi-Russia deal extension

23 May 2017

BAGHDAD/VIENNA, May 22 (Reuters) - Saudi energy minister Khalid al-Falih paid a rare visit to Iraq on Monday in the latest effort by the top oil producer to convince its fellow OPEC member to extend supply cuts for a further nine months to ease the global glut and prop up prices.

SINGAPORE, May 23 Oil prices were firm on Tuesday on the expectation that an OPEC-led production cut would be extended to next March, but analysts said economic slowdown was clouding the mid-term outlook for crude markets.

Still, oil had gained modestly to start the week, and had rebounded almost 10% over the past two weeks, as expectations grow for an extension to the OPEC-led production cut agreement when the group meets this week.

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"It's not huge, but it won't help Saudi efforts", he said.

That could raise production above 10 million bpd, up from 9.3 million bpd now, putting the competition with Saudi Arabia and Russian Federation for the world's biggest oil producer. "All I talked to from inside OPEC are supporting the nine months of cuts". The supply reductions were initially meant to last six months from January, but the slower-than-expected decline in surplus fuel inventories prompted the group to consider an extension. "His visit appears to have been a success given that Iraq, which was previously willing to extend the production cuts only by six months, has now signalled its agreement to nine months", Fritsch said. Data from the U.S. Energy Information Administration indicate that maintaining the curbs into the first quarter of 2018 would bring stockpiles back in line with the five-year average - OPEC's stated goal. Production there would be cost-prohibitive when compared with the USA shale oil basins that have been more resilient to lower crude oil prices than expected. Non-OPEC nations Oman and Mexico also confirmed their support for a nine-month extension. "Its strategy of incentivising Western markets (with lower official selling prices) in the past did not result in retaining those markets", the minister said. "If the need arises for any correction, this can be done in coming ministerial conferences", the first OPEC delegate said.

"I doubt Iraq will cut any more in the second half than it has already", said Robin Mills, the Dubai-based chief executive officer of consultant Qamar Energy.

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Brent crude, the global oil benchmark, fell 1% to $53.35 a barrel on London's ICE Futures exchange.

OPEC impressed oil traders this year by making nearly all the supply cuts it promised. "A deepening of cuts, though, has more potential to provide an upside surprise".

"There is an initial willingness for one or two countries from the small producers to join", Al-Falih said.

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