Oil Edges Higher As OPEC Reaches Consensus On Cut Extension

OPEC members and their partners in the oil production cut agreements from last November and December have reached a consensus to extend the deal until the end of 2017, the oil ministers of Iraq and Algeria said at a joint news conference.

Jabber al-Luaibi and Noureddine Boutarfa said the official announcement of the extension will take place at OPEC’s May 25 meeting at its headquarters in Vienna, with the Algerian minister adding that “Algeria and Iraq maintain a united stand for the next cuts.”

No mention was made about deepening the cut, as some analysts have suggested might be necessary. The initial agreement envisaged OPEC taking off 1.2 million bpd from global supply with Russia and 10 other non-members cutting another 600,000 bpd. Two OPEC members are exempt from the cut—Nigeria and Libya— and a third member, Iran, was allowed to boost output to a specified level.

Earlier this month, the energy ministers of Russia and Saudi Arabia also indicated in no ambiguous terms that they would be on board with the extension.

The announcement will likely boost to oil prices, which yesterday jumped on reports from the American Petroleum Institute and the Energy Information Administration, which both estimated U.S. crude oil inventories to have fallen by more than 5 million barrels in the week to May 5. Related: Is This Country Africa’s Qatar of Natural Gas?

Brent crude jumped back above US$50 on the news and stayed there, buoyed by the ministers’ comments, while WTI, which last Friday slipped below US$45 a barrel, regained some ground, settling yesterday at US$47.91 a barrel.

Both investors and analysts are doubtful about the effects of the deal extension, with some suggesting it would have to be extended beyond the end of 2017 and others arguing that cuts won’t do the trick because it is missing the point: U.S. producers are boosting their drilling efficiency and lowering production costs, which results in sustainable profitability.

By Irina Slav for Oilprice.com

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