Venezuela says OPEC's task is stabilise oil market and force inventory-draw

Aldo Flores-Quiroga said he believed members of OPEC should and would continue plans to coordinate oil production cuts into at least 2018. But the intended impact could be short-lived. The surges in US demand offsets even another impressive increase in 15,000 barrels a day seems a bit small when you compare it to demand.

But in the longer term, there are concerns among OPEC countries that higher oil prices may end up being counterproductive as they encourage US shale gas producers to re-enter the market - a development that could weigh on oil prices. Their output already is partially offsetting the cuts, and even more US companies are poised to return if prices rise further.

Oil traded near a one-month high before OPEC ministers meet in Vienna to decide on extending supply cuts.

Crude has climbed as Saudi Arabia and non-OPEC member Russian Federation rally support for an extension into 2018 of the output-cut deal by the Organisation of Petroleum Exporting Countries and its allies.

On Thursday, Riyadh's energy minister Khalid al Falih said at the OPEC meeting that he expected the extension to ease the global crude glut sufficiently by early 2018.

The Organization of Petroleum Exporting Countries agreed in November to cut output by about 1.2 million barrels a day.

Opec and non-Opec delegates said joint cuts with non-Opec were agreed at around 1.8 million bpd, which would see non-Opec producers again contributing a reduction of under 600,000 bpd.

The decision to maintain the production cuts for nine months was unanimously approved by the Vienna agreement signees, Novak stressed. He spoke only on condition of anonymity because he was not authorized to divulge the information prematurely.

But the comments by Saudi Arabia, the most influential player in the cartel, wiped out early gains in the oil price in anticipation of the meeting in Vienna.

Opec first suggested extending cuts by six months, but later proposed to prolong them by nine months.

Michele Della Vigna, co-head of European equities at Goldman Sachs, said deeper cuts might actually be the best strategy. "Inventories are drawing down", he told reporters.

Industry consultancy Wood Mackenzie said in a statement that without sustaining the output reduction, prices for Brent crude would fall to an annual average of United States dollars 43/bbl. Prices typically rise ahead of Memorial Day weekend as Americans hit the road, but the upswing has been muted this year due to plentiful oil supplies.

OPEC said its decision is meant to rebalance market conditions and accelerate the draw downs on global crude inventories, which so far has proven to be a hard task. US shale production requires a higher price to be profitable.

"All options are open", an OPEC source said, adding that a deeper cut in output was an option depending on estimated growth in supply from non-OPEC producers, mainly US shale oil firms, among other scenarios.

The evidence that current cuts are starting to work is becoming evident in US oil inventory numbers.

  • Zachary Reyes