Oil-producing alliance extends output cuts

"OPEC production cuts have finite lifespans".

The Organization of the Petroleum Exporting Countries' 14 current members and 10 non-OPEC members agreed Thursday to continue their cuts of 1.8 million barrels a day, generally from October 2016 crude production levels, through the first quarter of 2018.

CFTC data showed that in the week ahead of the OPEC meeting, hedge funds raised bullish bets on US crude for the first time in five weeks. With crude prices above $50 a barrel from lows of past year, they are increasingly moving back into the market.

The plunging value of the commodity had been causing problems for many countries such as Saudi Arabia and Russian Federation, which rely on oil as one of their main sources of income.

USA oil production has already risen by 10 per cent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

World stocks hit record highs on Thursday and the dollar dipped after the U.S. Federal Reserve signaled caution in raising interest rates, while oil prices rose in anticipation of top producers agreeing to extend output cuts for up to a year.

The next meeting of OPEC and non-OPEC oil producers is schedule 30 November. Non-OPEC producers were scheduled to meet OPEC later in the day.

Analysts also said that the OPEC-led production cuts would support a further rise in U.S. output. The extension was supposed to show an unprecedented degree of cooperation between Opec and a group of non-member producers.

Less oil on the market normally means higher value per barrel.

Saudi Energy Minister, Khalid al-Falih, was qouted by Reuters as saying that Nigeria and Libya would still be excluded from cuts as their output remained curbed by unrest.

"There are number of oil market variables which could play out over the course of the second half of the year". "The December meeting was a breakthrough", he said.

The African nation's economy relies heavily on oil and natural gas (roughly 95% of its gross domestic product, or GDP). That has had a growing effect on global supplies. "I have been in OPEC close to 20 years".

Ann-Louise Hittle, vice president at energy consultancy Wood Mackenzie said the "decision in Vienna sends a signal of continued support for oil prices from OPEC which helps US onshore drillers make plans" to further increase their production. "So the region that it is in at the moment, it gives us the ability to plan", she said in an interview with CNBC.

OPEC cares more about the global inventory picture.

When asked how critical it would be for the oil producing cartel to extend an output reduction deal beyond June, the minister said the "general consensus" among oil producers was stability around the $60 a barrel mark would be a necessary milestone.

  • Zachary Reyes