OPEC, Russia, and Iran Hint at Oil Deal Extensions

A Russian/Iranian alliance could last as long as five years. File Image / Pixabay

Coming well in advance of the June meeting of the Organization of the Petroleum Exporting Countries (OPEC), Russia said on Tuesday that it and Iran could extend a deal on oil supplies after it expires at the end of this year.

The gesture of unity comes as hints of OPEC extending its crude output cuts buoyed traders and contributed to a Tuesday price stabilization after West Texas Intermediate and Brent dropped $1.17 and $1.13 respectively the day prior.

Alexander Novak, energy minister for Russia, was quoted by RIA new agency as saying that his nation and Iran could extend a bilateral deal on oil supplies for as long as five years after expiration later in 2018.

He remarked, "It has been extended for the year, but in general, we think it should be extended for five years."

It's unclear to what extent his comment will embolden traders in the days to come, but Bakheet Al-Rashidi, oil minister for Kuwait, told media that OPEC and allied producers - including Russia - will consider maintaining their production limits beyond the end of this year when they meet in June to assess the market; he added that the liaison could last "indefinitely."

As for the immediate concern of where crude prices will go in the near-term, Jun Inoue, a senior economist at Mizuho Research Institute Ltd., said, "OPEC and its allies are expected to control their supplies at levels that meet demand even after crude inventories decline," also, "declining U.S. crude inventories should support oil prices."

He was referring to a Bloomberg survey showing U.S. crude inventories possibly falling last week after holding below the five-year average over the previous month.

Last week, a Bloomberg television host wondered why OPEC would still want to extend its production cuts when its goal of rebalancing the market had all but been reached; Daniel Dicker, founder of The Energy Word, replied succinctly, "It means massive upside for oil" - meaning, a significant boost to the ailing economies of many OPEC members.