OPEC extends oil output cut by nine months to fight glut

OPEC members, Russian Federation and other oil producers last December agreed to cut production by 1.8 million barrels per day for 6 months beginning January 1 2017.

Crude oil plunged 5 per cent following the announcement, and held its losses early on Friday. The price of West Texas Intermediate oil, the US benchmark crude, declined 3.8% to $49.39 at 1:06 p.m.

Oil prices fell almost 5 percent today as OPEC's decision to extend production curbs fell short of expectations of deeper or longer cuts. OPEC's move was greeted by a sell-off. Parties to the agreement, which includes producers outside the Organization of Petroleum Exporting Countries, may have to consider which parties cut production, by how much and for how long.

"It's all gone as expected", Bob Yawger, director of the futures division at Mizuho Securities USA Inc.in NY, said by telephone. He said the rally in recent days left few buyers to support futures once prices started to fall.

"It is a disappointment that OPEC hasn't done more to balance the markets", he added.

The agreement hammered out in Vienna on Thursday will see the 1.8m barrel a day cuts, first agreed in November, extended to the end of the first quarter of 2018.

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

It stated that: "Today's second OPEC and non-OPEC Ministerial Meeting was jointly chaired by HE Khalid A. Al-Falih, President of the OPEC Conference, and Minister of Energy, Industry and Mineral Resources of the Kingdom of Saudi Arabia, and HE Alexander Novak, Minister of Energy of the Russian Federation".

"I expect we (Nigeria) will get OPEC exemption but one year from now will it be renewed?"

The OPEC group first gathered for a meeting in the morning, ahead of a scheduled meeting with non-OPEC members in the afternoon.

Rising U.S. production has limited the effectiveness of the earlier output deal, and any price bump from the latest deal could put renewed downward pressure on crude as shale companies rush to pump more oil. That has had a growing effect on global supplies. That helped boost prices, but it also has spurred a big increase in USA shale production, with more expected to come on line.

The U.S. benchmark gained more than 1% to hit its strongest since April 19 at $52.00 in overnight trade.

OPEC does not have plans to impose restrictions on oil extraction in Libya and Nigeria in the nearest future, al-Falih stated, as the two countries' production does not affect the plan to reduce global oil stocks.

  • Zachary Reyes