OPEC nearing deal to extend oil output cut to March 2018

Martinez, center, People's Minister of Petroleum from Venezuela leaves the building of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Wednesday, May 24, 2017. The.

Opec and non-members led by Russian Federation decided yesterday to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.

Now that "everyone is on board" with a nine-month extension of last November's agreement to cut production by OPEC, tomorrow's meeting of the cartel in Vienna is expected to rubber-stamp that extension.

"The prospect at the end of last month that an agreement might not happen saw oil prices hit their lowest levels since the end of November, so anything short of a nine month extension is likely to fall well short of market expectations", said Michael Hewson, chief market analyst at CMC Markets. But any uptick in prices may be modest and temporary.

How high production can go in the US remains uncertain, but output from producers in the region has been cited as a main headwind to oil's price being lifted higher by any agreement to limit global production.

"If OPEC cuts production even more, it will likely lose additional market share to USA shale and prices may not move up much more".

A nine-month deal could help keep prices more stable leading into OPEC's usual winter meeting in six months and keep oil relations harmonious within the producer group.

Brent crude oil dropped $1.16 a barrel to a low of $52.80 before regaining lost ground to trade at $53.96, unchanged on the day, by 0900 GMT.

That deal, which has helped push up oil prices, is due to expire at the end of June. That will be welcome news to consumers and energy-hungry businesses worldwide but could continue to strain the budgets of some of the more economically-troubled oil-producing nations, like Venezuela and Brazil.

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

More than 400 oil rigs are now working US shale fields, an increase of more than 120 per cent compared to a year ago.

Most OPEC ministers including those from Iraq and Iran had already voiced support for extending cuts by nine months.

Benchmark crude that flirted with the $30 mark now fetches over $50 barrel, but that is substantially less than the highs reached in 2014.

Instead of selling future production in order to finance prompt output when the oil price curve is in contango, Driscoll said shale drillers can now use backwardation to sell prompt production while buying into the cheaper back-end of the curve as a hedge.

US output since last year's cut has increased by almost a million barrels a day to 9 million barrels.

(Ecofin Agency) - Nigeria's oil minister, Emmanuel Kachikwu (photo), said Nigeria is not opposed to joining the cut measure of OPEC. Instead it's about "ability to delivery and striking a balance with the US", he said.

OPEC Secretary General Mohammed Barkindo has made engagement with hedge funds and trading houses a priority, meeting several times with managers that many within OPEC had long derided as speculators. Crude prices are unlikely to rise substantially - and that means the era of windfall profits appears to be over for member nations, at least for now.

  • Zachary Reyes