Published: Fri, May 19, 2017
Money | By Armando Alvarado

OPEC panel looking at deepening, extending oil cuts

A decision will be made at a regular meeting in Vienna on May 25.

Saudi Arabia and non-OPEC Russia have said they see a need for an extension to output reductions.

But market watchers are growing more confident that OPEC, Russia and other big producers will extend cuts of nearly 1.8 million barrels per day (bpd) until the end of March 2018.

Since the start of March, the Brent price has swung from more than $56 a barrel to less than $47 as opinion has swayed over whether cuts by the Organization of the Petroleum Exporting Countries and other producers will offset rising US output.

Oil rose above $50 a barrel in NY for the first time in three weeks on the expectation that OPEC will reaffirm efforts to drain a global glut. The ongoing struggle to thin supplies has forced economists to cut their oil price forecasts. The market is about priced for an extension of supply cuts next week, although there is possibility of some uncertainty about whether it would be for six or nine months, stated Danske Bank.

The stalled drawdowns shed light on the broader challenge facing OPEC - the Organization of the Petroleum Exporting Countries - as it struggles to steer the industry out of the downturn caused by oversupply.

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The global benchmark for crude oil was up $1.35, of 2.7 percent on the day, at $52.19 a barrel on the news.

"In terms of delivering an initial boost to the price, the production cuts were successful", said Ganguli.

Oil prices have gained support from the supply cut pact but high inventories and rising US production have acted as a brake on the recovery.

"This 550 million barrel-plus inventory build of crude and products that started in 2014 is still very much there", he said. Dun & Bradstreet expects Brent crude-oil prices to average $55 a barrel this year.

'Even if we extend the cuts just at the current level, they should be enough to support the price in the range that we're looking at-about $55 a barrel/ for Brent.

In recent years Saudi Arabia, concerned with the increase in US shale gas production, increased its oil output to drive down prices in a bid to make shale gas exploration economically unattractive.

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