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Russia and Saudi Arabia may be more flexible on supply – Iraqi minister

Both U.S. benchmark WTI and international benchmark Brent crude oils rose above the $32 mark today as new hope for a supply deal emerged. Iraqi Oil Minister Adel Abdel Mahdi said he saw “some flexibility” from Saudi Arabia and Russia for a deal to reduce output amid a global glut.

“This flexibility should be finalized, and we should hear some solid suggestions coming from all parties,” said Abdul Mahdi at a conference in Kuwait City. He didn’t give the details about what the increased Saudi and Russian flexibility entailed, nor did he say how he knew about it, reports Bloomberg.

Both Saudi Arabia and Russia would be key to an agreement to cut global production and raise prices. Either one could continue to produce at record high levels, keeping downward pressure on oil prices, making cooperation from both imperative.

“The practice of filling the market with cheap oil at any cost is wrong – half a year or a year later it could be sold at twice as high,” said Vice President of Lukoil, Russia’s second-largest oil producer, Leonid Fedun.

So far, only a handful of non-OPEC members have made the offer to cut production. Oman, the largest non-OPEC producer in the Middle East, said it would be willing to cut production by up to 10% if it was done in cooperation with other producers.

OPEC head calls warns of supply shock

OPEC Secretary General Abdullah al-Badri issued his strongest call for cooperation yet this week, saying “tough times require tough choices.”

“It is crucial that all major producers sit down and come up with a solution,” al-Badri said a Chatham House conference in London.

Al-Badri warned that the current glut is setting the stage for a future supply shock, reports Telegraph. “It is vital that the market addressed the stock overhang,” he said.

Saudi investment in production continues

The chairman of state oil firm Saudi Aramco, Khalid al-Falih, said the company plans to invest in production despite deep spending cuts across most of the industry, reports Reuters.

Saudi Arabia is well documented to be the clear lowest cost producer,” he said. “Demand will grow, as it has already started in 2015, and there will be a period not far into the future (when) demand will catch up with supply.”

Cooperation could push prices above $40 per barrel

If the world’s major oil producers came to an agreement about the amount of production they planned to put on the market, prices could reach the $40-$60 range, David Hufton of oil brokers PVM told Reuters.

Concerns remain despite the possibility of lower production, however. Oil and gas inventories remain at historic highs, and a preliminary survey conducted by Reuters showed that U.S. commercial crude oil and gasoline inventories likely rose further last week.

Weakness in China’s economy has also left some wondering if demand will keep up with growing supply. China posted an 11.9% drop in rail freight volume in 2015, feeding worries about the economic slowdown.

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