OPEC, production cuts extended to the end of 2018

OPEC, production cuts extended to the end of 2018

Editorial Staff
At the Vienna meeting it was agreed that oil production cuts will be extended by nine months to avoid a price collapse

Oil output cuts will last until the end of 2018. It was decided by the ministers of OPEC and allied countries (OPEC+), currently gathered in Vienna. The decision taken by the oil producing countries will thus extend by nine months the current deal to cut 1.8 million barrels per day, which was due to expire in March 2018. The measure, supported by OPEC countries and Russia in particular, aims to tackle global oversupply of crude and bolster oil prices, now back to above USD 60 per barrel, avoiding another price collapse.


Russia pushed for a clear message on how to exit the cuts so that prices don't rally too fast and rival U.S. shale producers, which did not participate in the meeting, don't boost their output further. OPEC also decided to cap the output of Nigeria to around 1.8 million barrels per day, but has still not agreed on a figure for Libya. Both countries were previously exempt from the cuts.


The idea to extend the cuts beyond March 2018 had long been under consideration, although no unanimous agreement had yet been reached on the duration of the extension. Russia, a solid ally of OPEC, confirmed its readiness to discuss the extension very recently through a statement delivered by Russian Energy Minister Alexander Novak (https://www.abo.net/en_IT/home.page?type=2&url= /en_IT/photonews/oil-moscow-eng.shtml&lnkfrm=Top) at the Forum of Gas Exporting Countries held in Bolivia last week.


Saudi Energy Minister Khalid al-Falih expressed support for the extension shortly before the meeting, pointing out that it is premature to talk about phasing out the cuts at least for a couple of quarters, and adding that OPEC will examine progress at its next meeting in June. And when the time comes to stop the cuts, he said, "we are going to do it very gradually, to make sure we don’t shock the market."


The decision to set a date (June 2018) to examine and review the agreement, also in light of new developments, was pushed by Russia, whose oil companies have made dramatic output cuts to date and are no doubt anxious to resume normal production levels. The concession to Moscow has more to do with symbolism than with substance since the traditional midyear meeting, in which the measures to be taken are reassessed based on market conditions, is held every year in June.