OPEC extends output cut for 9 months
- Author: Leroy Wright May 31, 2017,
May 31, 2017, 3:52
OPEC and other producers, including Russian Federation, will roll over their six-month deal to remove 1.8 million barrels a day from the market through March 2018.
The price of oil has fallen by about 5%, despite oil-producing nations agreeing to extend production cuts for a further nine months.
Some market participants had priced in more aggressive output cuts from the Organization of the Petroleum Exporting Countries and other producers.
At the time, non-OPEC output was falling at a rate of about 700,000 barrels a day, while global demand was growing around 1.5 million barrels a day, year on year, and "visible inventories" were declining by roughly 1.2 million barrels a day, he said.
Most world stock markets rose Thursday as investors assessed the Federal Reserve's latest meeting minutes, while crude oil's rally fizzled out ahead of an OPEC meeting on production. United States of America shale production requires a higher price to be profitable.Ahead of the meeting, the organization announced that Equatorial Guinea had joined, expanding OPEC membership to 14. Dow futures gained 0.3 percent to 21,049.00 and broader S&P 500 futures added 0.2 percent to 2,407.10.
Saudi Energy Minister Khalid Al-Falih said the decision was the optimal choice following deliberations aimed at rebalancing the market and bringing inventory levels down to five-year average levels, i.e. from current levels of around 3bn barrels to 2.7bn barrels.
Gaining back some of those losses, Brent crude futures LCOc1 were at $51.83 per barrel at 0708 GMT, up 0.37 cents, or 0.7 percent, from their last close.
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.
The alliance between OPEC and non-OPEC producers is strong, but not strong enough to derail production momentum from North America, analysis finds.
U.S. West Texas Intermediate (WTI) crude futures traded at $49.58 a barrel, up 68 cents day on the day.
Oil at $50 a barrel has encouraged more US shale output, since production costs are down from a few years ago. Nigeria and Libya will remain exempt from making cuts and Iran, which was allowed to increase production under the original accord, retains the same output target, said Kuwait's Oil Minister Issam Almarzooq.