OPEC continues to cut output

EXTENSION EYED

JESSE SNYDER New data suggest OPEC continued to curb oil production last month, even as it signalled that a sustained rise in U.S. shale production could frustrate its efforts to put a floor on prices.

In its closely watched monthly oil report, OPEC said Wednesday that it collectively cut production in March to 31.93 million barrels per day, a 153,000 bpd reduction from February.

The report also pointed to rising production levels in the U.S. and Canada, particularly in U.S. tight oil plays. Canadian oil production is expected to grow as oilsands expansion projects begin to ramp up over the next few years, while many major oil producers refocus their portfolios around prolific U.S. shale basins.

OPEC members, led by Saudi Arabia, have faced heightened pressure amid their bid to raise prices, as U.S. shale producers have continued to pump crude despite prices hovering in the US$50 range.

Last month, Saudi energy minister Khalid al-Falih warned that it would not subsidize non-OPEC producers by cutting back its own output levels.

The OPEC data released Wednesday could again raise speculation over whether the Saudis will continue on its current path. The group combines OPEC member estimates with third-party analysis to determine its monthly production levels.

OPEC first agreed to cut production in November 2016, lifting prices. In the first months of the agreement OPEC member compliance has been higher than expected, with the Saudis shouldering the bulk of the 1.2 million bpd cut. NonOPEC members including Russia agreed to an additional near-600,000 bpd cut.

Crude prices have made gains in the past few weeks on U.S. inventory data and recent reports that Saudi Arabia intends to push for a deal extension. The kingdom has for months signalled that it wants to extend cuts in the second half of 2017, as it prepares to launch an IPO for its stateowned oil behemoth Saudi Aramco.

The group is set to meet in Vienna May 25 to discuss the extension. Investors have been closely parsing public statements by OPEC ministers, who are widely expected to extend their agreement to curb oil supplies.

Analysts have said that a three-month extension, rather than the full six months, might be examined as a way to give OPEC states more flexibility.

Analysts at Bank of America Merrill Lynch expect OPEC to extend cuts in 2017, but warn that rising U.S. shale production in coming months could cause members to abandon the agreement. The bank analysts recently travelled to several Gulf States to meet with OPEC members.