Market Extra: OPEC deal needs to last at least 2 years: Total CEO

OPEC’s efforts to boost prices and balance the oil market are working, but they will need to run for at least another year, according to Total CEO Patrick Pouyanné.

Speaking at the Oil & Money conference in London on Wednesday, the Total

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 boss said the output pact between the Organization of the Petroleum Exporting Countries and a group of non-cartel members — including Russia — has helped to shrink inventories since it was implemented in January.

However, the major crude producers will need to extend the agreement beyond the current end date of March 2018 to achieve their goal of eliminating the supply glut, Pouyanné explained.

“I said in January, right after the agreement when I was in Abu Dhabi [that] if really the OPEC and non-OPEC agreement has to have an effect it should last for at least 2 years,” the Total CEO said.

“I will still reiterate that. It’s a known that when you have three to four years of oversupply, it takes time to balance the market.”

The oil market has been battling against a persistent oversupply in recent years, partly due to a surge in output from U.S. shale producers thanks to significant technological advances. As a result prices, came crashing down in 2014 and have failed to rebound to their prior peaks. Both West Texas Intermediatecrude

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 and Brent

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  are down more than 50% from their 2014 peaks above $100 a barrel.

In response to the supply glut and weak prices, OPEC in November 2016 agreed to cut production for the first time in eight years. The cartel decided to limit its total output to 32.5 million barrels a day, a reduction of 1.2 million barrels from its peak. Several non-cartel producers — including Russia — agreed to join the output accord and cut 600,000 barrels in an effort to bring global inventories down to their five-year average.

However, as U.S. shale production continues to rise, the global oversupply is still weighing on prices. Several OPEC nations, including cartel kingpin Saudi Arabia, have already discussed the possibility of letting the deal run through 2018. That could be decided at the OPEC meeting in Vienna on Nov. 30.

Pouyanné said at the London conference that Russia and Saudi Arabia both seem committed to prolonging the deal, noting Saudi Arabian King Salman bin Abdulaziz al Saud’s visit to Moscow earlier in October.

“The historic visit of King Salman to Moscow cemented an even stronger agreement between two of the three main [oil] countries in the world. I’m convinced both of them are targeting a price above $60 per barrel,” Pouyanné said.