Published: Sun, May 28, 2017
Health Care | By Oscar Goodwin

OPEC extends oil output cut by nine months

Backwardation - when near-term crude prices are higher than those for later months - will be needed for the cuts to shrink the glut, and prevent an increase in U.S. shale production, the bank said.

The Organisation of the Petroleum Exporting Countries (OPEC), that caters to one-third of the world's oil requirement, along with non-OPEC countries Thursday extended a production cut aimed at tightening the market well into 2018.

The decision extends a cut of 1.2 million barrels a day by OPEC. "US output has increased c.1m bbl/d to 9m bopd, placing the country's output alongside Saudi Arabia and Russian Federation, thus somewhat diluting OPEC's ability to play a role in setting prices and supplies".

"Malaysia welcomes the decision agreed today and reaffirms its commitments to today's agreement and wishes the cooperation to be successful", he added.

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Many OPEC members spoke after the meeting of a stabilization of prices in the near-term, however given the current supply and demand fundamentals with the oil market, I don't expect a rebound to 2013 levels anytime soon. Brent crude fell $2.60 to $51.36 a barrel on Thursday and was trading at $51.47 on Friday morning while the West Texas Intermediate slipped $2.58 to $48.78 a barrel and had reached $48.82 on Friday. Some investors seem to have expected a longer extension.

"All indications are solid that a nine-month extension is the optimum, and should bring us to within the five-year average of inventories by the end of the year".

Brent crude oil settled down $2.50, or 4.6 percent at $51.46 a barrel.

European stock markets opened down as turbulence in oil markets following Thursday's OPEC meeting, at which oil producers extended existing output cuts but did not expand them, undermined sentiment towards risk assets in general.

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OPEC ministers were forced by Texas shale oil producers on Thursday to extend a supply cut into 2018, a regulator from the USA state said.

Less oil on the market normally means higher value per barrel. OPEC would like to achieve a price increase up to $55-60 per barrel, said Ecuador's Energy Minister Carlos Perez. The pre-announcement of the scope of the deal by the oil ministers of Saudi Arabia and Russian Federation also contributed to the fall along with other rumors of extended cuts and more countries joining the initiative.

The next meeting of OPEC and non-OPEC oil producers is schedule 30 November.

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