OIL BARREN
OPEC and other oil-producing countries expected to prolong output reductions,
VIENNA— OPEC countries and other producers, including oil giant Russia, are backing prolonging last year’s production cut to shore up crude prices, strongly indicating that an extension is a done deal even before they meet formally on the issue Thursday.
The output reductions have been in effect since November, when the 13-country Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production by 1.2 million barrels a day, while non-OPEC countries chipped in with a further 600,000-barrel reduction.
That deal, which has helped push up oil prices, is due to expire at the end of June.
Saudi energy minister Khalid al-Falih noted a “trend” among participants to prolong the cuts for nine months. OPEC secretary general Mohammad Barkindo said there is “growing consensus” for an extension.
Iraqi oil minister Jabbar Ali Hussein al-Luiebi told reporters there was already apparent unanimous consent “to continue the cut that we had in November.” Bijan Namdar Zanganeh, his Iranian counterpart, said: “We support the proposal for nine months.”
A committee of all nations participating in the cuts also recommended a nine-month extension on Wednesday. Non-OPEC countries that are part of the deal will attend the meeting, including Russia’s energy minister Alexander Novak.
But in the longer term, there are concerns among OPEC countries that higher oil prices may end up being counterproductive as they encourage U.S. shale gas producers to re-enter the market — a development that could weigh on oil prices.
Despite last year’s production cuts, oil prices have risen by less than OPEC hoped for. At around $50 (U.S.) a barrel, benchmark crude is up from the sub-$30 levels reached in early 2016. Still, prices are around half the levels reached in 2014.
Financial information firm IHS Markit sees OPEC revenues showing a modest gain this year after dropping from their peak of $1.2 trillion in 2012. But the total, it said, “will be less than half the level of 2012, when prices were more than double current levels.”
U.S. output since last year’s cut has increased by nearly a million barrels a day to 9 million barrels. That already puts American production up there with Saudi Arabia and Russia and cuts further into OPEC’s past ability to play a role in setting prices and supplies.
Commerzbank cited data from the U.S. Department of Energy saying U.S. production was roughly 540,000 barrels per day higher in mid-May than at the start of the year.
“This offsets nearly half of OPEC’s production cuts,” it noted.
More than 400 oil rigs are now working U.S. shale fields, an increase of more than 120 per cent compared to a year ago. And U.S. producers are poised to expand more.