Economy

OPEC meets to extend oil output cut, fight global glut

OPEC meets to extend oil output cut, fight global glut

Oil producers within and outside OPEC agreed on Thursday to extend output cuts into 2018 to ease a global supply glut and support the price of crude.

An alliance of numerous world's biggest oil-producing nations extended their agreement to cut output for an additional nine months - an effort to support prices that will prove hard in the face of growing production from the U.S. Brent crude had fallen 1.3 percent to around $53 per barrel following OPEC's decision.

While low prices were welcome news to firms and to consumers filling up their cars, they blew a hole in the finances of oil-producing nations, even rich Gulf countries, to say nothing of on-the-brink Venezuela.

It was the biggest percentage decline for both benchmarks since March 8th.

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.

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

Michele Della Vigna, co-head of European equities at Goldman Sachs, said deeper cuts might actually be the best strategy.

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, he said after the meeting.

"What we didn't need was volatility, we need much more stability which the OPEC deal has given us", the minister said.

"Our goal is to balance the market, ensure an investment flow into the industry, make the future more predictable for development of the oil industry".

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Amrita Sen, analyst at consultancy Energy Aspects agreed. "A nine-month extension isn't enough to really lift oil prices as we'll continue to see United States shale fill the gap", said Neil Wilson at ETX Capital.

The U.S. West Texas Intermediate crude July contract was at $50.50 a barrel by 7:00AM ET (11:50GMT), down 86 cents, or around 1.7%.

OPEC oil ministers were continuing their discussions in Vienna. Non-OPEC producers were scheduled to meet OPEC later in the day.

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. The day's volumes of 1.1 million contracts of WTI were the highest since the November 30 session, when OPEC first announced cuts.

"There have been suggestions [of deeper cuts], many member countries have indicated flexibility but. that won't be necessary", Saudi Energy Minister Khalid Al Falih said before the meeting.

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