Opec extend oil output cut by nine months, prices fall

"We considered various scenarios from six to nine to 12 months and we even considered options for higher cuts", Saudi Arabia s Energy Minister Khaled al-Falih said after a meeting of 24 countries at OPEC headquarters in Vienna.

OPEC decided on Thursday to extend cuts in oil output by nine months to March 2018, OPEC delegates said, as the producer group battles a global glut of crude after seeing prices halve and revenues drop sharply in the past three years. But the hoped-for benefits could be short-lived.

The price rise this year has spurred growth in the USA shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs.

While low prices were welcome news to firms and to consumers filling up their cars, they blew a hole in the finances of oil-producing nations, even rich Gulf countries, to say nothing of stricken Venezuela. Their output already is partially offsetting the cuts, and even more US companies are poised to return if prices rise further.

OPEC and other producers had been widely expected to agree to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

Oil prices plunged almost 5 percent on Thursday after major exporters extended their deal to limit oil production for nine months, disappointing investors who were anticipating deeper cuts. USA light crude CLc1 was 40 cents higher at $51.76.

The price of oil, however, slumped $1.03 a barrel to $50.33 in NY trading Thursday on the realization that the extension is unlikely to substantially boost prices in the longer term. Price of the Brent crude oil at the London ICE (Intercontinental Exchange Futures) rose $0.49 to trade at $54.45. The IEA calculates the cartel earned nearly $75 million extra a day in the first quarter of this year than in the last quarter of 2016, despite collectively cutting output to 31.9 million barrels a day from 33.3 million.

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.

The decision extends a cut of 1.2 million barrels a day by the Organization of the Petroleum Exporting Countries.

"The cooperation between non-OPEC and OPEC countries will continue, as it has already yielded very good results", said Russian energy minister Alexander Novak.

There are two meetings scheduled at the OPEC headquarter today; the first one within OPEC and the second one between OPEC and non-OPEC participating countries.

Falih said on Thursday that Saudi exports would fall in June and were below what customers had demanded.

  • Zachary Reyes