How OPEC can get oil prices back to $60 a barrel

Ahead of Thursday's crucial meeting, Algerian Energy Minister Noureddine Boutarfa said Tuesday that OPEC was discussing a possible nine-month extension to oil output cuts, according to Reuters. But the hoped-for benefits could be short-lived.

OPEC also faces the dilemma of not pushing oil prices too high because doing so would further spur shale production in the United States, the world's top oil consumer, which now rivals Saudi Arabia and Russian Federation as the world's biggest producer.

Years of low prices forced shale producers in the country to become much more efficient, and turned them into a major market force. But even a slight rise in value per barrel will fuel further USA shale production, meaning more and cheaper oil down the road.

The Organization of the Petroleum Exporting Countries meets formally in Vienna on Thursday to consider whether to prolong the deal reached in December in which OPEC and 11 non-members agreed to cut output by about 1.8 million barrels per day in the first half of 2017. Non-OPEC countries led by Russian Federation chipped in with a further 600,000-barrel reduction.

He said the "breakthrough was mainly due to the excellent compliance" to the agreed production cuts by Opec members and participating non-Opec countries. "The agreement by OPEC to extend cuts into 2018 is critical", the AB Bernstein report said.

US crude inventory data released Wednesday by the Energy Information Administration was broadly upbeat for producers, showing the lowest overhang since December 2014.

Sen explained that the only way that oil producers can get "visible inventories" to fall would be by cutting exports, as opposed to just production.

Oil prices have risen less than OPEC hoped for from last year's levels. At over $50 a barrel, benchmark crude sits substantially below the highs reached in 2014, but is priced high enough to bring back into the market USA producers who eased back as prices tumbled a year ago.

The White House's proposed budget calls for the U.S.to start selling SPR oil the 2018 fiscal year, which gets underway on October 1.

The production cut, introduced in January, was initially only to cover the first half of 2017, but an ongoing glut has put pressure on OPEC and its allies to extend at a meeting in Vienna on Thursday.

The two sides made a decision to remove about 1.8 million barrels per day from the market in the first half of 2017, equal to 2 percent of global production.

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. Financial information firm IHS Markit sees OPEC revenues showing a modest gain this year after dropping from their peak of $1.2 trillion in 2012.

More than 400 oil rigs are now working U.S. shale fields, an increase of more than 120 percent compared to a year ago.

  • Zachary Reyes