After OPEC deal, Texas oil regulator boasts of victory

by Ben Pena June 8, 2017, 1:33

Strict compliance level among OPEC members can increase oil prices to $50-$55 a barrel range from sub-$50, but it will also encourage USA shale producers to boost production, limiting output-cut effects.

Nigeria and Libya were again excluded from this latest cuts as their output remained curbed by unrest, Saudi Energy Minister Khalid al-Falih said.

Oil cartel members meeting in Europe agreed Thursday to extend petroleum production cuts into 2018, as they seek to regain market power amid a surge of US shale output that has kept fuel prices low.

Prices have risen on a consensus that a pledge by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russian Federation, to cut supplies by 1.8 million barrels per day (bpd) would be extended into 2018, instead of covering only the first half of 2917.

Iranian Oil Minister Bijan Zanganeh, who often clashed with Saudi Arabia at previous OPEC meetings, said he would follow the majority of members in their decision and added there was no proposal on the table for deeper cuts.

With a production of around 300,000 barrels per day, the Central African country is one of OPEC's smallest oil producers, OPEC statistics show.

Oil prices fell almost 5 percent today as OPEC's decision to extend production curbs fell short of expectations of deeper or longer cuts.

"Don't forget that some Opec members would like to exit the cuts strategy sooner rather than later, and it's highly unlikely the likes of Iran would agree to a rolling over of cuts for longer than 6 to 9 months".

However, the strategy of the 24 involved countries only initially boosted crude oil prices to around USD55 per barrel earlier this year, and oil has since mostly been trading between USD50 and USD54.

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However, Kachikwu, in an interview with Bloomberg TV ahead of the meeting, said Nigeria was not opposed to joining the production cuts in a bid to prop up oil prices.

The earlier decline in oil price, which started in 2014, forced Russian Federation and Saudi Arabia to tighten their belts and led to unrest in some oil-producing countries, including Venezuela and Nigeria.

That means US shale may emerge as the deal's biggest beneficiary, a reality that highlights the pressure on the two massive players, Saudi Arabia and Russian Federation, to extend their output agreement-even though so far it hasn't significantly lifted prices or drained a global oversupply of petroleum.

The extension, which begins 1 July, holds in place an agreed reduction of 1.8 million B/D, or about 2% of global production, that OPEC leaders said was met with 102% compliance in April. This has slowed the market's rebalancing with global crude stocks still near record highs.

As markets have been expecting the current output limit to be extended, benchmark prices for European and United States oil did not rise on Thursday but fell to USD53.24 and USD50.56 per barrel respectively.

It estimated that a nine-month extension would result in a 950,000 barrels a day production increase in the USA, thus undermining Opec's efforts to balance supply and demand.

Still, analysts were disappointed the group did not seek steeper cuts and a longer extension.

OPEC and independent producers are working on institutionalizing the cooperation between them, but there is still a lot of work to be done in order to achieve this goal, according to al-Faleh.

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