OPEC extends production cuts

Xavier Trudeau
Juin 7, 2017

Oil cartel Opec and other producers, including Russian Federation, meet in Vienna on Thursday and are widely expected to agree to extend a cut in oil supplies by 1.8-million barrels a day. The Organization, Russia, and other major oil producers agreed to curb production by 1.8 million barrels per day (bpd) for six months from January 1 to support the market and push prices to $60 per barrel.

"It seems highly likely. that we are going to roll over with the same terms for nine months", Saudi Energy Minister Khalid al-Falih said before the meeting began, adding that OPEC members Nigeria and Libya would still be excluded from cuts.

Yesterday, brent crude oil fell more than 1pc to around $53 per barrel as markets were disappointed Opec would not deepen the cuts or extend them by as long as 12 months.

While, OPEC's cuts have helped oil again to go back above $50 a barrel this year, which has given a fiscal boost to producers.

Oil prices plunged almost 5 percent on Thursday after major exporters extended their deal to limit oil production for nine months, disappointing investors who were anticipating deeper cuts.

Brent, the global oil marker, was down 58 USA cents at $53.37 a barrel, partly on disappointment the cuts had not been increased in size or extended for even longer. That's because USA shale oil producers have taken advantage of the uptick in prices since previous year to ramp up production. Wood Mackenzie said that, if meetings Thursday result in agreements to a deeper cut in production, oil would move to just over $60 per barrel.

Oil weakened after OPEC and its allies agreed to extend output cuts for another nine months, disappointing investors who had hoped for more.

"A nine-month extension of the output cuts is already baked into prices", said Olivier Jakob, energy markets analyst at Swiss consultancy Petromatrix.

The three-person body regulates the Texas oil industry.

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

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 US production and high levels of imports, said Patrick Morris, CEO of New York-based HAGIN Investment Management.

The production cut deal could help remove surplus global crude oil supplies. "We expect substantial drawdown in oil inventories in the second half of the year". "Then, the fourth quarter will get us to where we want".

Already, Saudi Arabia and Russian Federation, a non-OPEC state - both world's top two oil producers - have agreed on the need to prolong the current cuts until March 2018.

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