Saudi oil minister confident in extension of production cuts

Before, Opec's strategy was to keep pumping at full tilt in order to push the oil price lower and make life hard for the Americans, who need a higher price to make money.

Al-Falih says he doesn't expect any objections to a nine-month extension to the output cut deal between OPEC and none-OPEC members through March 2018. "And so must OPEC".

Neither Saudi nor most of other Opec members can afford this scenario right now, BofAML said in the report. "The oil Industry is at a delicate cross road and higher crude prices will give a further push to renewables", he said. Morse did not respond for a request for comment.

Just this month the two architects and key players in last year's agreement, Saudi Arabia and Russian Federation, announced they would continue with the agreement, set to shortly expire, until March 2018 and indeed will accelerate cuts to reduce near record inventories.

Joint statement of the Ministers made a wave of optimism into the market and pushed oil futures up.

"Clearly there is positive momentum in the oil market as it is continuing to price the OPEC deal", said Jens Naervig Pedersen, a senior analyst at Danske Bank A/S in Copenhagen.

He asked OPEC to treat Asian markets as primary markets, saying OPEC's "strategy of incentivising Western markets in the past did not result in retaining those markets". It now sometimes mimicks the language of central bankers. OPEC agreed to slash the output by 1.2 million barrels per day from January 1. However longer supply curbs are needed to drain excess inventories built up during years of high oil prices. This year, the International Energy Agency said the market was "almost balanced", though recent trends suggest balance is slow to emerge.

"It is exceptionally important for producers to understand the behaviour of financial market players and what they think about future price trends". But even with higher US supplies, the oil market under OPEC-led production caps would eventually move towards a "significant deficit".

The two ministers were expected to hold a news conference later on Monday after the talks.

"One of the government's obligations is to explain to investors the logic of its decisions", said Novak's head analyst Pavel Sorokin, who previously worked for Morgan Stanley. In the first quarter, Iraq met only 61 percent of its target, though compliance improved to 90 percent in April, according to OPEC data. "But we don't discuss anything confidential", he added.

The stakes are a lot higher for OPEC than they used to be.

United States of America shale drillers aren't the only ones threatening to offset OPEC's oil production cuts.

And, unusually for the cartel - notorious for bending the rules on their own production cuts - its members have actually been holding the line. A month later Falih promised "whatever-it-takes" steps, including extending cuts well into 2018.

  • Zachary Reyes