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March 27, 2017 10:45 AM, EDT

Oil Producers Consider Output Cut Extension as Support Grows

Andrey Rudakov/Bloomberg News

Oil producers pledged to consider extending their pact limiting supply, as half a dozen nations said more time was needed to drain swollen stockpiles.

Five OPEC members and Oman backed an extension, with Kuwait saying it should be for six months. The ministers met March 26 in Kuwait City and asked the Organization of Petroleum Exporting Countries to make a recommendation in a month on the possibility of prolonging the supply curbs.

“We are ready to support” extending the deal, which took effect in January, Venezuela’s Oil Minister Nelson Martinez said on March 26. Fellow OPEC producers Iraq, Algeria and Angola also have backed an extension. “It does make sense to extend the agreement for another six months,” said Mohammed Al Rumhy, energy minister for non-OPEC producer Oman.

Brent crude, the global benchmark, was trading down 4 cents at $50.76 a barrel as of 9:23 a.m. on March 27. in Singapore.

Kuwait in March became the first nation to call for extending the production cuts, with Oil Minister Issam Almarzooq saying inventories had grown more than expected. OPEC and 11 other major producers including Russia agreed in 2016 to slash production, spurring a 20% increase in Brent crude prices during the last five weeks of 2016. The rally stalled this year as U.S. output and supplies continued to grow. OPEC ministers will meet May 25 in Vienna to decide whether to extend the deal.

A compliance committee of OPEC ministers from Kuwait, Algeria and Venezuela and their counterparts from Russia and Oman concluded meetings in Kuwait City on March 26 with a statement asking OPEC to review the market and give them a recommendation in April on rolling over the cuts.

Russia Energy Minister Alexander Novak said it’s too early to talk about an extension and that it won’t make any pledges until April. Russia needs more time to assess the market, inventories and production in the United States and other non-OPEC countries, Novak said in an interview with Bloomberg Television.

After the March 26 meeting, Kuwait’s Almarzooq, the compliance committee’s chairman, said OPEC is assessing whether to prolong the cuts for another six months. But the committee in its final statement removed a section in the draft that said it recommended a six-month extension. It also added a sentence saying the ministerial committee “will deliberate before submitting its recommendation to the participating countries.”

With U.S. crude stockpiles swelling to record levels and prices sinking below $50 a barrel, OPEC and its partners have little choice but to keep going, according to all 13 analysts surveyed by Bloomberg. Inventories in countries in the Organization for Economic Co-operation and Development are currently 282 million barrels higher than their five-year average, OPEC Secretary-General Mohammad Barkindo said at the meeting.

Khalid Al-Falih, the energy minister of OPEC’s biggest producer, Saudi Arabia, said in a Bloomberg Television interview on March 17 that the deal will be maintained if oil stockpiles are still above their five-year average.

“Certain factors, such as low seasonal demand, refinery maintenance, and rising non-OPEC supply, have slowed down the positive impact of the production adjustments on inventory drawdowns,” the committee said in its statement. “At the same time, the liquidation of positions by financial players in the market was also observed.”

OPEC’s compliance rate was 106% in February, and non-OPEC nations including Russia have reached compliance of 64%, Kuwait’s Almarzooq said March 26. The combined compliance rate of both was 94%, he said.

Iraq expressed a willingness to support extending the cuts but only if OPEC and others agree, Oil Minister Jabbar Al-Luaibi told reporters.