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OPEC Extends Oil Output Cut By 9 Months

OPEC Extends Oil Output Cut By 9 Months

Non-OPEC producers including Russian Federation also agreed to cut production through March, said Bijan Namdar Zanganeh, Iran's minister of petroleum, according to Bloomberg.

OPEC and other producers had been widely expected to agree to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

The agreement proved to be partially successful, as it managed to keep the prices oil prices above $50 per barrel, giving a fiscal boost to major producers.

The sharp fall in oil prices in 2014 forced Russian Federation and Saudi Arabia to plan a freeze in output while it led to political unrest countries including Venezuela and Nigeria.

USA shale production requires a higher price to be profitable compared with traditional crude oil. Brent crude had fallen 1.3 percent to around $53 per barrel following OPEC's decision.

OPEC oil ministers are, however, continuing their discussions in Vienna after three hours of talks.

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OPEC produces a third of the world's oil.

Late past year 24 countries, including those in the Organization of the Petroleum Exporting Countries, agreed to cut production by 1.8 million barrels per day. The Sultanate reached one million barrels per day average production for the first time in history in 2016 but will continue to choke its production at 970,000 bpd, slashing 45,000 bpd in adherence to the agreement.

Despite the output cut, OPEC kept exports fairly stable in the first half of 2017 as its members sold oil from stocks.

The production cut, introduced in January, was initially only to cover the first half of 2017, but an ongoing glut has put pressure on OPEC and its allies to extend the cut at a meeting in Vienna on Thursday.

At a press conference, Saudi Arabia's Oil Minister Khalid al-Falih stated that cohesion between the Organization of Petroleum Exporting Countries (OPEC) and non-member nations is stronger in the unity of objectives and approaches, and they will work to expand that spirit, and see markets develop at a rapid pace.

"As far as OPEC is concerned, keeping the level of the cut for another nine months will help to balance the market", said Iraqi Oil Minister Jabbar Ali Hussein al-Luiebi.

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Falih also said Saudi oil exports were set to decline steeply from June, thus helping to speed up market rebalancing.

How shale producers respond in coming months will have as much of an effect on pricing as OPEC's cuts, he said.

The current level of consolidation between OPEC and non-OPEC countries is a historic achievement, according to Russian Minister of Energy Aleksandr Novak, who believes that the cooperation will continue.

In recent weeks, optimism over a deal has helped push prices higher. Instead, prices are higher for delivery 12 months from now, which works in the favor of US drillers, who are funding production by locking in higher prices for future shipments and leaving crude in storage. Crude prices tumbled by about 5% to trade below $49 barrel after the deal was announced. When OPEC agrees to limit production, oil prices, in theory, should rise. "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, despite its clumsiness, is expanding its base and its access to producers outside the cartel, with unclear consequences for consumers and economies that depend on the world's most important commodity.

Non-OPEC producers, including Russian Federation, the world's largest oil producers, were to meet with OPEC to decide on their own output levels on Thursday, potentially amplifying the effect on the market.

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