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News > World

Oil Nears $65 Per Barrel, Producers Extend Cut to 2018's End

  •  The OPEC logo outside their headquarters in Vienna, Austria, October 2016.

    The OPEC logo outside their headquarters in Vienna, Austria, October 2016. | Photo: Reuters

Published 30 November 2017
Opinion

The cuts have been in place since the start of 2017 and have helped halve an excess of global oil stocks.

Oil producers led by the Russian Federation have agreed with OPEC to continue throttling back oil output, extending cuts until the end of next year so that the over-supply of global crude oil can be cleared up.

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Russia, a non-OPEC member, agreed this year to cut production significantly along with OPEC for the first time. However, the country has been working to prevent the United States – which lies outside of the accord – from taking a larger market share and extracting further shale oil if the market flips into deficit and oil prices remain above US$60 for a prolonged period.

Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock-market listing for national energy champion Aramco next year and stands to benefit from higher-priced crude.

OPEC and Russia together produce over 40 percent of global oil. Moscow's first real cooperation with OPEC, put together with the help of President Vladimir Putin, has been crucial in roughly halving an excess of global oil stocks since January.

The cuts have been in place since the start of 2017 and helped halve an excess of global oil stocks, although those remain at 140 million barrels above the five-year average, according to OPEC.

Oil prices are now at a near two-year high, with Brent Crude approaching $65 per barrel.

"The current market conditions, the returning level of confidence and optimism in the industry are all evidence of the outcome of our joint efforts," OPEC Secretary-General Mohammad Sanusi Barkindo said earlier this week.

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The Saudi kingdom's energy minister, Khalid al-Falih, told reporters the Organization of the Petroleum Exporting Countries and non-OPEC allies agreed on a nine-month extension of cuts until the end of 2018, as the market had largely anticipated.

OPEC also decided to cap the combined output of Nigeria and Libya at 2017 levels, below 2.8 million barrels per day. Both countries have been exempt from cuts due to unrest and lower-than-normal production.

Falih said it was premature to talk about exiting the cuts at least for a couple of quarters, as the world was entering a season of low winter demand. He also said OPEC would examine progress at its next regular meeting in June.

"When we get to an exit, we are going to do it very gradually... to make sure we don't shock the market," he said.

A joint OPEC and non-OPEC communique said the next meeting, in June 2018, would present an opportunity to adjust the agreement based on market conditions.

The Iraqi, Iranian and Angolan oil ministers also said before Thursday's meetings that a review of the deal was possible in June in case the market became too tight.

Gary Ross, a veteran OPEC watcher and founder of Pira consultancy, said the market could surprise on the upside with Brent rising to $70 if there were a major supply disruption. "Everywhere you look there is an ever-present risk to supply," Ross said.

"In Iraq's Kurdistan, there is a major risk to oil exports because of tensions with Baghdad; in Libya, militias are still fighting; in Nigeria, the risks of disruptions are significant; Venezuela is on the verge of default; Iran could again face U.S. financial sanctions, and even in Saudi Arabia political risk is on the rise."

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