Major oil producers agree to extend output cuts by nine months

The energy minister of Russian Federation has underlined how global oil producers still have the flexibility to do more to help rebalance markets just hours after OPEC and non-OPEC members agreed to prolong their current agreement.

Strict compliance level among OPEC members can increase oil prices to $50-$55 a barrel range from sub-$50, but it will also encourage United States shale producers to boost production, limiting output-cut effects.

"Medium term, we remain positive on the oil price and forecast the price on Brent crude to average USD60/bl in 2018 on the back of a lower Dollars and somewhat tighter oil market", Danske argues. US light crude was 90 cents lower at $50.46. Many have returned to the market since crude prices have risen from last year's lows to over $50 a barrel, and more are set to resume operations if crude prices go even higher.

OPEC's current deal, agreed at the end of previous year, only covers the first half of 2017.

"There have been suggestions (of deeper cuts), many member countries have indicated flexibility but. that won't be necessary", he said, adding that global stocks were falling and Saudi exports declining.

"I think nine months is most likely", one OPEC delegate said. Shipping data in Thomson Reuters Eikon showed that more than 200,000 bpd of USA crude went to Asia on average in the first four months of the year.

Amrita Sen, analyst at consultancy Energy Aspects agreed.

The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs.

OPEC oil ministers were continuing their discussions in Vienna after three hours of talks.

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

"Despite the production limit, the International Energy Agency has calculated that the cartel earned nearly $75million extra per day in the first quarter of this year compared with the last quarter of 2016".

OPEC and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day until the end of the first quarter of 2018.

The price of oil is down further after OPEC and other nations said they had agreed to extend their production cuts for another nine months.

"The cut that we made is working", said Saudia Arabia's Khalid al-Falih, energy minister OPEC's largest producer.

The oversupply of oil in the market should not persist past the third quarter as inventory numbers are declining and continue moving in a downward trend despite higher USA production and high levels of imports, said Patrick Morris, CEO of New York-based HAGIN Investment Management.

The extension had been widely expected, after numerous major players said before Thursday's meeting that they backed further cuts.

  • Zachary Reyes