OPEC extends cuts in oil output by nine months
- Author: Zachary Reyes May 26, 2017,
May 26, 2017, 3:27
Nigeria and Libya, both suffering from unrest, were excluded from production caps agreed by OPEC and non-OPEC producers in December a year ago and effective from January until June 2017.
US output since past year has increased by almost a million barrels a day to a daily 9 million barrels.
The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global stocks still near record highs.
Brent crude traded at US$53.82 (S$74.74) a barrel as of 3:14 p.m.in London, down 0.3 per cent, after earlier sliding 2.3 per cent.
OPEC oil ministers are, however, continuing their discussions in Vienna after three hours of talks. The African nation will be one of the group's smallest producers, pumping about 270,000 barrels a day, a little more than neighbouring Gabon.
"Comments from the Saudi oil minister that a nine-month extension is the 'safe bet", and that deeper cuts were not necessary, caused a near panic reaction this morning with Brent oil dropping nearly $2 in the minutes that followed, ' the expert said.
The two sides chose to remove about 1.8 million barrels per day (bpd) from the market in the first half of 2017 - equal to 2 percent of global production, taking October 2016 as the baseline month for reductions.
The cuts are likely to also be implemented by a dozen non-members led by Russian Federation, which has reduced output in tandem with OPEC since January.
Strict compliance level among OPEC members can increase oil prices to $50-$55 a barrel range from sub-$50, but it will also encourage U.S. shale producers to boost production, limiting output-cut effects.
Non-OPEC producers, including Russian Federation, the world's largest oil producers, were to meet with OPEC to decide on their own output levels on Thursday, potentially amplifying the effect on the market.
He also said Saudi oil exports were set to decline steeply from June, thus helping to speed up market rebalancing.
OPEC members will "discuss the extension with nonmember producers later on Thursday", Bloomberg says.
Maintaining lower output through the first half of this year has been cited as a major factor in supporting global crude prices at around Dollars 50/bbl. "Into 2018, we expect Brent would average at least $55 per barrel on a monthly basis". "Then, the fourth quarter will get us to where we want". "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".