OPEC likely to extend oil output cuts, but price relief elusive
- Author: Zachary Reyes May 25, 2017,
May 25, 2017, 21:04
LONDON, May 24 Ministers from OPEC and non-OPEC oil exporters are meeting in Vienna today and tomorrow to decide whether to extend production cuts that have been in effect since the start of the year.
OPEC and non-OPEC ministers meet for informal consultations in Vienna on Wednesday in a last-ditch bid to agree the duration of oil output cuts as they seek to clear a global stocks overhang that has pulled down the price of crude.
Both benchmarks have gained more than 10% from their May lows below US$50 a barrel, rebounding on a consensus that the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russian Federation, would extend their pledge to cut supplies by 1.8 million barrels per day (bpd) to March 2018.
With the deal due to expire at the end of June, one participant said the group had opted for a nine-month extension. OPEC Secretary General Mohammad Barkindo said there is "growing consensus" for an extension.
It is estimated that the nine-month extension can further increase United States production, which can offset the initiative to rebalance the market. Non-OPEC countries that are part of the deal will attend the meeting, including Russia's Energy Minister Alexander Novak.
Their output already is partially offsetting the cuts, and even more US companies are poised to return if prices rise further.
Despite last year's production cuts, oil prices have risen by less than OPEC hoped for.
Benchmark crude that flirted with the $30 mark now fetches over $50 barrel, but that is substantially less than the highs reached in 2014.
Front-month Brent futures prices closed on Tuesday at $54.15 compared with $48.35 on May 23, 2016, an increase of just $5.80 over the last 12 months.
USA output since last year's cut has increased by almost a million barrels a day to 9 million barrels. And U.S. producers are poised to expand more, even if prices tick upward only moderately as a result of an oil-cut extension by OPEC and its partners. USA light crude oil was unchanged at $51.47. While stubbornly high global inventories have taken longer than expected to drain, signs that US stockpiles are easing from a record is adding to optimism.