OPEC likely to extend output cuts into next year

A consensus has already been reached by OPEC and non-OPEC producers to extend the cuts, he said, stressing that the agreement reached past year could be extended by six or even nine months. "The JMMC then considered several scenarios presented by the JTC regarding the extension of the Declaration of Cooperation and chose to recommend that the production adjustments of the participating countries be extended for nine months commencing 1 July 2017". Non-OPEC countries will attend the meeting, including Russia's Energy Minister Alexander Novak.

Even after last year's cuts, oil prices have risen less than the Organization of the Petroleum Exporting Countries hoped for.

The OPEC oil cartel and other producers, notably Russian Federation, are this week expected to extend last year's production cut in a concerted attempt to prevent oil prices from falling. At around $50 a barrel, benchmark crude is up from the sub-$30 levels reached in early 2016.

In the longer term, there are concerns among OPEC countries that higher oil prices may end up being counterproductive as they encourage USA shale gas producers to re-enter the market - a development that could weigh on oil prices.

It is possible that the backwardation between 2011 and 2014 was irrelevant as overall price levels were so high that production was profitable anyway.

USA output since last year's cut has increased by almost a million barrels a day to a daily 9 million barrels. "This impacted prices. People were saying there was a deal and production was cut but we weren't seeing that translated on inventories".

Experts noted that both crude benchmarks have gained more than 10%from their May lows below $50.00 US a barrel, rebounding on a consensus that the Organization of the Petroleum Exporting Countries (OPEC) and other producers will maintain strict limits on oil production in an attempt to drain a global oversupply. A six-month extension would be "disappointing" while a nine-month pledge will offer some support to oil prices.

Leading non-Opec producer Russian Federation, among the 11 non-Opec players that signed up to production cuts in December, is also not keen to extend the output cuts for more than nine months. Even if it does, the drawdown would extend over 10 years.

  • Zachary Reyes