OPEC leans towards oil cut extension, but non-members need to be in - sources


* Prolonging output curb needed to balance market - sources
    * 'Hard negotiations on the way,' says source
    * Russia yet to decide whether to extend cuts

    By Rania El Gamal and Alex LawlerDUBAI/LONDON, March 20 (Reuters) - OPEC oil producers
increasingly favour extending beyond June a pact on reducing
crude supply to balance the market, sources within the group
said, although Russia and other non-members need to remain part
of the initiative.
    The Organization of the Petroleum Exporting Countries is
curbing its output by about 1.2 million barrels per day (bpd)
from Jan. 1 for six months, the first reduction in eight years.
Russia and other non-OPEC producers agreed to cut half as much.
    The deal has lifted oil prices <LCOc1>, but inventories in
industrial nations are rising and higher returns have encouraged
U.S. companies to pump more. A growing number of OPEC officials
believe it may take longer than six months to reduce stocks.
    "An extension is needed to balance the market," an OPEC
delegate said. "Any extension of the cut agreement should be
with non-OPEC."
    OPEC sources told Reuters in February that the group could
extend the supply-reduction pact, or even apply deeper cuts from
July, if inventories fail to drop to a targeted level.
    The group wants stocks in the industrialised world to fall
to the average of the past five years. According to the most
recent data, for January, inventories of crude and refined
products stood 278 million barrels above this level.
    Five other OPEC sources said it was increasingly clear that
the market needed more than six months to stabilise but added
that all producers - in OPEC plus non-members - had to agree.
    "The ministers will meet in May to decide, but everyone has
to be on board," an OPEC source from a major producer said.
    OPEC next meets to decide output policy on May 25 in Vienna.
There will also be a gathering in May of OPEC and non-OPEC
producers, OPEC Secretary-General Mohammad Barkindo said last
    "Hard negotiations are on the way," another one of the
sources said.
    Russia, the largest of the 11 outside producers working with
OPEC, has not publicly said whether it supports extending the
supply cut, but is wary about the revival of U.S. shale output
due to higher oil prices. [nR4N1GE02E]
    "It's too early to know whether everyone will agree to
this," a source from a non-OPEC participant in the deal said,
referring to prolonging the output curb.
    The revival of shale oil production - whose growth added to
the oversupply that battered oil prices in mid-2014 - has
restrained the rally this year and may worry OPEC leaders.
    OPEC ministers and sources, however, have said they don't
see a large rebound in 2017. One OPEC source said shale
production was expected to grow by about 300,000 bpd this year -
a level the market could accommodate. [nL5N1FT248]
    "OPEC heavyweights such as Saudi Arabia are not happy with
the return of shale oil in full force and have to make a hard
choice between losing part of their market share or steady
income," said a source from a major non-Gulf OPEC producer.
    "They will more likely opt for income and will push to get
help from non-OPEC."

 (Editing by Dale Hudson)
 ((alex.lawler@thomsonreuters.com; +44 207 542 4087; Reuters
Messaging: alex.lawler.reuters.com@reuters.net))


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