Published: Sat, June 03, 2017
Economy | By Melissa Porter

OPEC and non-OPEC nations poised to extend output cuts

The Organization of Petroleum Exporting Countries has made a decision to extend cuts in oil output by nine months until March 2018.

The Organization, Russia, and other major oil producers agreed to curb production by 1.8 million barrels per day (bpd) for six months from January 1 to support the market and push prices to $60 per barrel.

On Thursday, Riyadh's energy minister Khalid al Falih said at the OPEC meeting that he expected the extension to ease the global crude glut sufficiently by early 2018.

Opec will extend its production cuts into 2018, as the oil cartel and its allies attempt to end a three year supply glut that has hammered crude prices.

Hence, the oil market is disappointed that OPEC did not deliver more today, either in terms of deeper production cuts or a longer extension.

A forecast from the U.S. Energy Information Administration published before the proposal to extend the agreement by nine months put the average price for Brent at $53 per barrel in 2017 and $57 per barrel next year.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $51.87, up 51 cents, or 1 percent.

"This is a problem for producers, rather than exporters".

US shale producers ramped their production in 2017, "eroding" the benefits of cuts by OPEC, which refuses to slash production even more, he said.

Russ Mould, investment director at AJ Bell, said the drop is partly due to the fact that some had hoped to see production cut even further.

Despite the output cut, OPEC kept exports fairly stable in the first half of 2017 as its members sold oil from stocks.

Energy consultancy Wood Mackenzie said keeping existing oil output at current levels for another nine months would result in a 950,000 bpd production increase in the United States, thus undermining OPEC's efforts to balance supply and demand.

OPEC accounts for a third of global oil production and includes numerous world's largest oil exporters such as Saudi Arabia and Qatar.

OPEC also faces the dilemma of not pushing oil prices too high because doing so would further spur shale-oil production in the USA, the world's top oil consumer. With prices likely to fall because of an oversupply in the market if they don't, both Russian Federation, and OPEC oil giant Saudi Arabia have spoken out in favor of an extension ahead of Thursday's meeting.

Brent crude oil prices have rallied from lows of below $48 per barrel in the first week of May.

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