Crude oil slips as OPEC takes "safe bet" nine-month extension

The world's major oil producers, led by OPEC's Saudi Arabia and non-OPEC Russia, agreed last November to cut output to remove a total of 1.8 million barrels a day from the market and extended their commitments past this June on Thursday.

Even a decision to maintain oil cuts thus is likely to only kick the can down the road from Thursday's meeting until OPEC ministers convene again late this year. USA crude futures have rebounded by about 13 percent from a five-month low since Saudi Arabia first proposed maintaining the curbs into 2018.

He added that the price fall on May 25 "was probably triggered" by "imbalances" in the market with some expecting deeper cuts to OPEC production. The deal has witnessed unprecedented compliance level, especially from OPEC members that topped 100 per cent in April this year.

The extended reductions are likely to be carried out once again in tandem with a dozen non-members led by top oil producer Russian Federation, which reduced output with the Organisation of the Petroleum Exporting Countries from January.

Since December Brent crude, the global benchmark, has recovered to as high as $60 per barrel from about $46, although it has dipped below $50 several times. The price of Brent crude is down to $53.74 a barrel.

OPEC is painfully aware of its diminishing power to influence the market as shale producers gain more clout.

West Texas Intermediate for July delivery was at $51.75 a barrel on the New York Mercantile Exchange at 7:55 a.m.in London.

With the 9-month extension in place, Wood Mackenzie forecasts that USA production will increase by 950,000 B/D through the second half of this year, 150,000 more than had the cuts been extended only for 6 months.

The alliance between OPEC and non-OPEC countries faces competition from USA shale producers.

Six months after forming an unprecedented coalition and delivering output reductions that exceeded expectations, resurgent production from U.S. shale fields has meant oil inventories remain well above targeted levels.

He said the groups had looked at the various options including deeper cuts, 6 month and at the end they both agreed on the nine-month which was more acceptable looking at the circumstance of the market. "This goal is important not only for us but also for consumers, as it ensures a sustainable future for oil supply and demand-the absence of which may produce seriously unwelcome outcomes such as price spikes and risks to global energy security". "U.S. shale producers are going to be saying thank you by increasing supply".

  • Zachary Reyes