OPEC and other nations extend output cuts
- Author: Zachary Reyes May 26, 2017,
May 26, 2017, 6:48
SINGAPORE, May 25 Oil prices rose ahead of an OPEC meeting on Thursday that is expected to extend a production cut aimed at tightening the market well into 2018, adding at least nine months to an initial six-month cut in the first half of this year. But the hoped-for benefits could be short-lived.
When OPEC agreed to curtail production to bolster crude prices, it was betting USA shale drillers would be too weak to fill the void.
USA oil production C-OUT-T-EIA has already risen by more than 10 percent since mid-2016 to over 9.3 million bpd as drillers take advantage of higher prices and the supply gap left by OPEC and its allies.
Prices have risen on a consensus that a pledge by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russian Federation, to cut supplies by 1.8 million barrels per day (bpd) would be extended into 2018, instead of covering only the first half of 2917. In turn, eleven non-OPEC producers, including Russian Federation, agreed to jointly slash their output by 558,000 barrels a day.
Al-Falih dismissed the market reaction on Thursday, noting that world economies are growing and continue to depend largely on crude as their lives' blood.
Martinez People's Minister of Petroleum from Venezuela speaks to journalists prior to the start of a meeting of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Thur.
Too rapid a growth risks "potentially oversupplying the market and revisiting 2014" a reference to the year when crude prices hit levels south of $40 a barrel.
Brent crude oil dropped as much as $1.24 a barrel to a low of $52.72 on Thursday before regaining ground to trade 20 cents lower at $53.76 by 1350 GMT.
Ministers will also consider extending production cuts for other periods of time, including six months and until the end of 2018. Futures closed 0.2% lower in NY even after the U.S. Energy Information Administration said inventories shrank for a seventh straight week, by more than twice the amount analysts had forecast.
More than 400 oil rigs are now working USA shale fields - an increase of more than 120 per cent compared with a year ago.
On Thursday, OPEC and non-OPEC agreed to extend cuts by the same 1.8 million bpd.
Commerzbank cited data from the U.S. Department of Energy saying U.S. production was roughly 540,000 barrels per day higher in mid-May than at the start of the year.
Al-Falih said it was important for shale oil producers, like those in the USA, to pace their output. Russian Energy Minister Alexander Novak said earlier three to five oil exporters were in talks to cut their oil production.
While analysts at research firm IHS Markit expect OPEC revenues to rise modestly this year after dropping from their peak of $1.2 trillion in 2012, "the total will be less than half the level of 2012, when prices were more than double current levels".
Ahead of the meeting, the organization announced that Equatorial Guinea had joined, expanding OPEC membership to 14.