OPEC extends production cuts by 9 months
Another nine months of production cuts to try to make a clear turn in the oil market, which until now has not yielded convincing recovery. Is what the Opec announced on thursday at the end of Vienna negotiations, after November’s landmark deal failed to clear a global supply overhang.
Vienna meetings reached agreement among the representatives of the producer countries gathered in the Opec cartel, headed by Saudi Arabia and supported by other major producers, including Russia: crude oil will be pumped at a reduced pace until March 2018.
The meeting was held six months away from the agreement that had put together for the first time the 24 major producing countries (those of the cartel and others eleven) to cut 1.8 million barrels per day the production of black gold, in an attempt to push the price high, by subtracting raw material from the market.
In a press conference shortly after the announcement, Khalid Al-Falih, Saudi Arabia’s energy and industry oil minister, said:
We considered various scenarios, from six (months) to nine to 12 and we even considered options for a higher cut… All indications are solid that a nine-month extension is the optimum and should bring us within the five-year average by the end of the year.
However, stockpiles remain high and production from non-participating countries, including the U.S., has been rising, capping crude some way below the $60 a level earmarked by OPEC’s de-facto leader, Saudi Arabia.
Indeed, since the first deal in November, the recovery in US production has mitigated the upward pressure on crude oil prices. With the 20% increase in quotations in just a few days, it was convenient for US manufacturers to reopen the taps that had been closed due to higher average production costs and the need for higher prices to compete in the international energy match.
Star and strip production rose to 9.32 million barrels a day last week, an increase of 550,000 this year: it means that nearly one-third of the effect desired by OPEC was swept Away from American production. Over the last ten months, the number of shale plants in operation has risen from a minimum of 262 to over 700. Paradoxically, the move taken by the cartel has put in place the main enemies on the international chessboard
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