The Organization of Petroleum Exporting Countries (OPEC) delegates and non-member oil producers decided to extend the cuts in oil production on Thursday by nine months, to March 2018, as the production group failed to fight against global excessive crude after witnessing the price divides into half and revenues rapidly decreased in the past three years.
The members of the cartel discussed in Vienna, whether to prolong the cut production, and it appeared that 11 non-members agreed to cut oil output about 1.8 million barrels per day in the first half of 2017. Most of the ministers, delegates and market see a nine-month extension as the base-case scenario, but some countries, including Russia have suggested a longer duration of cut of 12 months.
Maintaining the same level of production through March 2018 “is a very safe and almost certain option to do the trick”, Saudi Arabian Oil Minister Khalid Al-Falih said at the opening session of the meeting in Vienna. It’s likely to be balanced earlier than later”.
The cuts are likely to be shared again by a dozen non-members, including Russia, which lessened output in tandem with the Organization of the Petroleum Exporting Countries from January.
OPEC’s leader, Saudi Arabia, and top non-OPEC producer, Russia, said that cut extension must be done to prevent the oil price from falling down below $50 per barrel and also to speed up market
Prior to the decision, the nine-month extension discussion on Thursday may include an option of another three-month extension, according to the ministers from Nigeria and Russia. This is similar to the accord of last year in which the option of adding extra six-month extension was included.
OPEC’s cuts have helped push oil back above $50 a barrel this year, providing an economic boost to producers, many of which depend heavily on energy revenues and have had to burn through foreign-currency reserves to pad holes in their pocket.
The oil market is also eyeing for hints as to what actions OPEC may do in 2018. There’s concern whether OPEC could return to the free-for-all production that made the prices to fall from 2014 to 2016.
“We have said we will do whatever it takes”, said Al-Falih, commenting on the potential for action beyond March 2018.
In a television interview before the meeting on Thursday, Emmanuel Kachikwu, a Nigerian Oil Minister, said that adding extra months in the deal will bring producers price consistency.
WTI Crude oil lost 0.66% to $51.14 by 10:36AM EDT, while Brent Oil is 0.48% to $53.70 by 10:35AM EDT.
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