Opec extends oil cuts for nine months to end global glut

Saudi Arabia’s energy minister and president of the Opec, Khalid al-Falih (centre), opens the 172nd meeting of the Opec conference at Opec headquarters in Vienna, Austria, on May 25, 2017.
Saudi Arabia’s energy minister and president of the Opec, Khalid al-Falih (centre), opens the 172nd meeting of the Opec conference at Opec headquarters in Vienna, Austria, on May 25, 2017.PHOTO: AFP

VIENNA (BLOOMBERG) - Opec extended oil production cuts for nine more months after last year's landmark agreement failed to eliminate the global oversupply or achieve a sustained price recovery.

Non-Opec oil producers led by Russia later agreed likewise.

Members agreed to prolong their accord through March, Kuwait's Oil Minister Issam Almarzooq said. Nigeria and Libya remain exempt from the making cuts and Iran, which was allowed to increase output under the original accord, retains the same output target, he said.

Six months after forming an unprecedented coalition of 24 nations and delivering output reductions that exceeded expectations, resurgent production from United States shale fields has meant oil inventories remain well above target.

While supplies are shrinking, ministers acknowledged that the surplus built up during three years of overproduction won't clear until at least the end of 2017.

"The market seems to be a bit disappointed as there is no 'something extra' the markets waited for," said Jan Edelmann, a commodity analyst at HSH Nordbank. "It seems as though Opec fears letting the stock-draw run too hot."

Brent crude traded at US$53.82 (S$74.74) a barrel as of 3:14 p.m. in London, down 0.3 per cent, after earlier sliding 2.3 per cent. The Organization of Petroleum Exporting Countries (Opec) has submitted its extension proposal to its non-member partners before talks on their continuing participation take place later Thursday, according to one delegate.

Eleven non-members including Russia joined the original deal in December, bringing total supply-reduction pledges to about 1.8 million barrels a day.

The curbs were intended to last six months from January, but confidence in the deal, which boosted prices as much as 20 per cent, waned as inventories remained stubbornly high and US output surged.

Saudi Oil Minister Khalid Al-Falih insisted Thursday that the cuts are working, saying stockpile reductions will accelerate in the third quarter and inventory levels will come down to the five-year average in the first quarter of next year.

While he expects a "healthy return" for US shale, that won't derail Opec's goals and a nine-month extension will "do the trick," he said. 

The extension prolongs a rare period of collaboration between Opec and some of its largest rivals, including Russia. The last time both sides worked together was 15 years ago, and the agreement fell apart soon after it began. The current accord encompasses countries that pump roughly 60 per cent of the world's oil, but excludes major producers such as the US, China, Canada, Norway and Brazil.