OPEC and other nations poised to extend output cuts
- Author: Zachary Reyes May 26, 2017,
May 26, 2017, 6:12
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.
"Nine months with the same level of production that our member countries have been producing at is a very safe and nearly certain option to do the trick", Saudi Energy Minister Khalid al-Falih told CNBC ahead of a closed-door meeting.
The cuts are likely to be shared again by a dozen non-members led by top oil producer Russian Federation, which reduced output in tandem with OPEC from January.
The U.S. benchmark for crude was down $1.67 a barrel, or 3.3 percent, at $49.69 on Thursday.
The data comes one day before the Organization of the Petroleum Exporting Countries, along with non-member producing nations, are scheduled to decide whether to extend an agreement to cut world supply, an effort that has only recently started to bear fruit in global inventory figures.
So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya, and a relentless increase in USA shale oil output. Crude has traded between $48 and $57 since December of a year ago, kept in range by concerns about mounting stockpiles but also greater optimism regarding global demand.
The proposed cuts are expected to be shared again by non-OPEC producers during a meeting later in the day.
The first agreement to cut production was achieved last December during an OPEC summit in Vienna.
"It is highly likely that the decision is made that we are going to roll over with the same terms on a nine month period", Falih told reporters.
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".
While the Organization of the Petroleum Exporting Countries' prior production cuts strengthened crude oil prices in the past, the euphoria in the market appears to have faded.
Consequently, oil traders are wary that OPEC's new pledge will do any real support to the depressed prices.
OPEC is painfully aware of its diminishing power to influence the market as shale producers gain more clout.
The upshot is that the price of oil - and derived products like fuel -is unlikely to increase much in coming months.
In other news on Wednesday, prices fell slightly as investors reacted to the latest weekly US inventories data.
The extension of cuts by OPEC comes in context where it wishes to support oil prices more and curb glut in the market.
The Iranian oil minister said earlier that crude priced between $55 and $60 a barrel is right for both OPEC and Iran.
"US shale oil producers have been so far focusing on the sweet spots", Mazrouei said in Vienna.