OPEC extends production cuts

The minister pointed out that OPEC oil output cut agreement has benefited not only the producers, who are a part of the agreement, but other countries as well.

OPEC's cuts have helped push oil back above 50 dollars a barrel, giving a fiscal boost to producers.

OPEC is to extend oil production cuts for nine more months after last year's landmark agreement failed to eliminate the global oversupply or achieve a sustained price recovery.

United States oil production has already risen by more than 10% since mid-2016 to more than 9.3-million barrels a day as its drillers take advantage of higher prices and the supply gap left by Opec and its allies. With crude prices above $50 a barrel from lows of previous year, they are increasingly moving back into the market.

Benefiting from a market known as contango, in which future oil prices are higher than those for immediate delivery, USA drillers have sold future production in order to finance expanding output.

The Organization of the Petroleum Exporting Countries and other producers, including Russian Federation, meet in Vienna on Thursday and are widely expected to agree to extend a cut in oil supplies by 1.8 million barrels per day (bpd).

The current agreement is expected to expire in June 2017 and the meeting to extend it will begin in Vienna on Thursday.

Boutarfa said extending output cuts by nine months would help to ease a global glut by the end of 2017, when inventories should decline to their five-year average: "Before the end of the year, prices may go above $55 a barrel".

Over the longer-term, this will lower the rig count growth in the USA and this is OPEC's ultimate plan since it no longer has the same influence it once held in dictating prices. The price of Brent crude is down to $53.74 a barrel.

Analysts argue oil prices will only rise if every OPEC's nation follows the policy to reduce oil production, but countries such as Venezuela ignored their pledges.

Iraqi oil minister Jabbar Ali Hussein Al-Luiebi told reporters there was already apparent unanimous consent "to continue the cut that we had in November". US oil prices edged lower on Wednesday but had been trending higher as expectations for a nine-month extension were priced in. This has slowed the market's rebalancing with global crude stocks still near record highs.

US output since last year's cut has increased by almost a million barrels a day to 9 million barrels.

"A nine-month extension of the production cuts agreed six months ago is meanwhile regarded as a done deal", Commerzbank (LSE: 21170377.L - news) said in a note.

Sources said however, a decision on deeper output cuts is unlikely on Thursday.

"Maybe three months, six or nine months", Zanganeh said.

  • Zachary Reyes