Opec, non-Opec producers roll over output restraint deal
Countries agree to extend oil-cut plan by nine months
Opec and its non-member partner countries yesterday reached a deal to roll over their output cuts for another nine months aimed at speeding up the reduction of the world’s oil glut.
“All indications are solid that a nine-month extension is the optimum and should bring [world crude oil inventories] within the target five-year average by the end of the year,” said Khalid Al Falih, Saudi Arabia’s oil minister, announcing the deal in Vienna.
Oil prices dropped sharply on the news of the deal and the fact the cuts would not be deeper. North Sea Brent crude futures were down nearly 4.5 per cent at US$51.57 in early evening trading Arabian Gulf time.
The Russian oil minister, Alexander Novak, said the historic deal reached last December, which joined 11 non-member countries with Opec to cut nearly 1.8 million barrels a day ( bpd) – or about 2 per cent of world production – had so far made good progress in starting to eat into the inventory glut.
Since it took effect in January, the cuts have helped keep prices mostly in the $50 to $55-a-barrel range this year, versus an average of $45 a barrel for all of last year.
“There had been a lot of scepticism about the deal in December, but for the first time non-Opec has participated in a deal like this and achieved very good results,” Mr Novak said at a joint Opec/non-Opec producers press conference. Progress has been slow and patchy, however, particularly in the US, where the shale oil that had been discouraged off the market last year has come roaring back, and where inventories remain about 10 million barrels above last year’s level and well above the historic average.
There is a general expectation that solid demand across the globe and a ramping up of activity by refineries, particularly in Asia, that had been down for maintenance, will lead to a sharp rise in demand in the second half of this year.
Mr Al Falih said the groups would continue to monitor market conditions, starting with a meeting in Russia in July of the market monitoring and technical committees that are also responsible for assessing compliance by the 24 countries in the deal.
Opec and its partners also announced that they are creating the framework to make their cooperation permanent from next year, creating a group that initially will account for about 55 per cent of world oil production, with others expected to join.