Russian Energy Minister Alexander Novak has had talks with Saudi Energy Minister Khalid al-Falih on an easing of the terms of the global oil supply pact that has been in place for 17 months, Novak said on Friday.
The energy ministers of Saudi Arabia, Russia and the United Arab Emirates are discussing an output increase of about 1 million barrels per day (bpd), sources told Reuters.
Speaking in St. Petersburg, Falih told Reuters that “all options are on the table” when asked about the targets on production cuts.
Brent crude futures were down 80 cents at $ 77.99 a barrel by 0914 GMT, having hit their highest since late 2014 at $ 80.50 this month.
U.S. West Texas Intermediate (WTI) crude futures were at $ 70.18 a barrel, down 53 cents.
“The debate about a possible relaxation of the production restrictions should preclude any renewed price rise,” Commerzbank analysts said.
“The $ 80 mark is likely to pose an obstacle that is difficult to overcome because it would significantly raise the probability of a production increase.”
The Organization of the Petroleum Exporting Countries (Opec) as well as a group of non-Opec producers led by Russia started withholding output in 2017 to tighten the market and prop up prices.
Global crude supplies have tightened sharply over the past year because of the Opec-led cuts, which were boosted by a dramatic drop in Venezuelan production.
The prospects of renewed sanctions on Iran after U.S. President Donald Trump pulled out of an international nuclear deal with Tehran have also boosted prices in recent weeks.
As a result, compliance with the deal to reduce output by 1.8 million bpd by the end of 2018 has been at 152 per cent, sources said.
Amrita Sen, chief oil analyst at consultancy Energy Aspects, said: “Addressing overcompliance was always likely to be on the agenda amid a tight market and low inventories, but the volume to bring back is still up for debate.”
HIGHER PRICES AT A COST
While Russia and Opec benefit from higher oil prices, up almost 20 per cent since the end of last year, their voluntary output cuts have opened the door to other producers to ramp up production and gain market share.
U.S. crude oil production has risen by more than a quarter in the past two years, to 10.73 million bpd. Only Russia produces more, at about 11 million bpd.
Output from the likes of the United States, Canada and Brazil, which are not bound by the Opec/Russian-led pact, is likely to rise further as crude prices rise.